Direct Digital Holdings, Inc. 10-K

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company,” we are not required to provide the information required by this Item 7A. ​ 64 Table of Contents ITEM 8. Consolidated Financial Statements and Supplementary Data DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 243 ) 66 ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688 ) 67 Consolidated Balance Sheets 68 Consolidated Statements of Operations 69 Consolidated Statements of Changes in Stockholders’ (Deficit) Equity 70 Consolidated Statements of Cash Flows 71 Notes to the Consolidated Financial Statements 72 ​ ​ ​ 65 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Direct Digital Holdings, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Direct Digital Holdings, Inc. (the “Company”) as of December 31, 2023, the related consolidated statements of operations, changes in stockholders’ (deficit) equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered significant disruption in its sell-side business and, among other things, has limited funds to meet certain upcoming obligations which, collectively, raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, P.C. We have served as the Company’s auditor since 2024. New York, New York October 15, 2024 ​ 66 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Direct Digital Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Direct Digital Holdings, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of operations, changes in stockholders’ / members’ equity (deficit) and cash flows for the year in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ /s/ Marcum LLP Marcum LLP We served as the Company’s auditor from 2021 to 2024. Houston, Texas April 17, 2023, except for the effects of the revisions disclosed in Note 2 as to which the date is October 15, 2024 ​ ​ 67 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and par value amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ ASSETS ​ ​ ​ CURRENT ASSETS ​ ​ ​ Cash and cash equivalents ​ $ 5,116 ​ $ 4,047 Accounts receivable, net of provision for credit losses of $ 344 and $ 4 ​ 37,207 ​ 26,354 Prepaid expenses and other current assets ​ 759 ​ 883 Total current assets ​ 43,082 ​ 31,284 ​ ​ ​ ​ ​ ​ ​ Property, equipment and software, net ​ ​ 599 ​ ​ 673 Goodwill ​ ​ 6,520 ​ 6,520 Intangible assets, net ​ ​ 11,684 ​ 13,638 Deferred tax asset, net ​ ​ 6,132 ​ ​ 5,165 Operating lease right-of-use assets ​ ​ 788 ​ 799 Related party receivable ​ ​ 1,737 ​ ​ — Other long-term assets ​ ​ 130 ​ 47 Total assets ​ $ 70,672 ​ $ 58,126 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY ​ ​ ​ ​ CURRENT LIABILITIES ​ ​ ​ ​ Accounts payable ​ $ 33,926 ​ $ 17,695 Accrued liabilities ​ 3,816 ​ 3,778 Liability related to tax receivable agreement, current portion ​ ​ 41 ​ ​ 183 Current maturities of long-term debt ​ 1,478 ​ 655 Deferred revenues ​ 381 ​ 547 Operating lease liabilities, current portion ​ 126 ​ 92 Income taxes payable ​ ​ 34 ​ ​ 174 Related party payables ​ — ​ 1,448 Total current liabilities ​ 39,802 ​ 24,572 ​ ​ ​ ​ ​ ​ ​ Long-term debt, net of current portion and deferred financing cost ​ 28,578 ​ 23,064 Liability related to tax receivable agreement, net of current portion ​ ​ 5,201 ​ ​ 4,150 Operating lease liabilities, net of current portion ​ 773 ​ 745 Total liabilities ​ 74,354 ​ 52,531 ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES (Note 9) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ (DEFICIT) EQUITY ​ ​ ​ ​ Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 3,478,776 and 2,900,000 shares issued and outstanding , respectively ​ 3 ​ 3 Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 10,868,000 and 11,278,000 shares issued and outstanding , respectively ​ 11 ​ 11 Additional paid-in capital ​ 3,067 ​ 2,611 Accumulated deficit ​ ( 2,538 ) ​ ( 344 ) Noncontrolling interest ​ ​ ( 4,225 ) ​ ​ 3,314 Total stockholders’ (deficit) equity ​ ( 3,682 ) ​ 5,595 Total liabilities and stockholders’ (deficit) equity ​ $ 70,672 ​ $ 58,126 ​ See accompanying notes to the consolidated financial statements. ​ 68 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per-share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2023 2022 Revenues ​ ​ ​ ​ ​ ​ Sell-side advertising ​ $ 122,434 ​ $ 60,011 Buy-side advertising ​ ​ 34,676 ​ ​ 29,349 Total revenues ​ ​ 157,110 ​ ​ 89,360 ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ ​ ​ ​ Sell-side advertising ​ ​ 105,733 ​ ​ 49,599 Buy-side advertising ​ ​ 13,803 ​ ​ 10,439 Total cost of revenues ​ ​ 119,536 ​ ​ 60,038 Gross profit ​ ​ 37,574 ​ ​ 29,322 ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ ​ ​ Compensation, taxes and benefits ​ ​ 17,730 ​ ​ 14,124 General and administrative ​ ​ 13,199 ​ ​ 7,219 Other expense ​ ​ 8,830 ​ ​ — Total operating expenses ​ ​ 39,759 ​ ​ 21,343 (Loss) income from operations ​ ​ ( 2,185 ) ​ ​ 7,979 ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ ​ ​ Other income ​ ​ 256 ​ ​ 48 Revaluation of tax receivable agreement liability ​ ​ 331 ​ ​ — Loss on early termination of line of credit ​ ​ ( 300 ) ​ ​ — Forgiveness of Paycheck Protection Program loan ​ ​ — ​ ​ 287 Loss on redemption of non-participating preferred units ​ ​ — ​ ​ ( 590 ) Interest expense ​ ​ ( 4,378 ) ​ ​ ( 3,231 ) Total other expense, net ​ ​ ( 4,091 ) ​ ​ ( 3,486 ) ​ ​ ​ ​ ​ ​ ​ (Loss) income before income taxes ​ ​ ( 6,276 ) ​ ​ 4,493 Income tax expense ​ ​ 568 ​ ​ 326 Net (loss) income ​ ​ ( 6,844 ) ​ $ 4,167 ​ ​ ​ ​ ​ ​ ​ Net (loss) income attributable to noncontrolling interest ​ ​ ( 4,650 ) ​ ​ 3,962 Net (loss) income attributable to Direct Digital Holdings, Inc. ​ $ ( 2,194 ) ​ $ 205 ​ ​ ​ ​ ​ ​ ​ Net (loss) income per share: ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.73 ) ​ $ 0.11 Diluted ​ $ ( 0.73 ) ​ $ 0.11 ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ ​ ​ ​ Basic ​ ​ 2,988 ​ ​ 2,848 Diluted ​ ​ 2,988 ​ ​ 2,891 ​ See accompanying notes to the consolidated financial statements. ​ 69 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY (in thousands except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Members' / ​ ​ Common Units ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders' ​ Units Amount Units Amount Units Amount APIC Deficit Interest Equity Balance, January 1, 2022 34,182 $ 4,294 — $ — — $ — $ — $ ( 4,669 ) $ — ​ $ ( 375 ) Net loss prior to Organizational Transactions ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 464 ) ​ ​ — ​ ​ ( 464 ) Issuance of Class A common stock, net of transaction costs ​ — ​ ​ — ​ 2,800,000 ​ ​ 3 ​ — ​ ​ — ​ ​ 11,164 ​ ​ — ​ ​ — ​ ​ 11,167 Conversion of member units to Class B shares ​ ( 28,545 ) ​ ​ — ​ — ​ ​ — ​ 11,378,000 ​ ​ 11 ​ ​ ( 11 ) ​ ​ — ​ ​ — ​ ​ — Conversion of Class B shares to Class A common stock ​ — ​ ​ — ​ 100,000 ​ ​ — ​ ( 100,000 ) ​ ​ — ​ ​ 36 ​ ​ — ​ ​ ( 36 ) ​ ​ — Redemption of common units ​ ( 5,637 ) ​ ​ ( 4,294 ) ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 2,906 ) ​ ​ — ​ ​ — ​ ​ ( 7,200 ) Effect of the Organizational Transactions on noncontrolling interest ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 6,649 ) ​ ​ 4,120 ​ ​ 2,529 ​ ​ — Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 154 ​ ​ — ​ ​ — ​ ​ 154 Distributions to holders of LLC Units ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,141 ) ​ ​ ( 3,141 ) Additional paid-in capital related to tax receivable agreement ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 823 ​ ​ — ​ ​ — ​ ​ 823 Net income ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 669 ​ ​ 3,962 ​ ​ 4,631 Balance, December 31, 2022 ​ — ​ $ — ​ 2,900,000 ​ $ 3 ​ 11,278,000 ​ $ 11 ​ $ 2,611 ​ $ ( 344 ) ​ $ 3,314 ​ $ 5,595 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders’ (Deficit) ​ Units Amount Units Amount APIC Deficit Interest Equity Balance, January 1, 2023 2,900,000 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,611 ​ $ ( 344 ) ​ $ 3,314 ​ $ 5,595 Stock-based compensation — ​ — — ​ — ​ 706 ​ — ​ — ​ ​ 706 Issuance related to vesting of restricted stock units, net of tax withholdings 90,092 ​ — — ​ — ​ - ​ — ​ — ​ ​ — Warrants exercised ​ 70,801 ​ ​ — ​ — ​ ​ — ​ ​ 122 ​ ​ — ​ ​ — ​ ​ 122 Stock options exercised ​ 7,883 ​ ​ — ​ — ​ ​ — ​ ​ 29 ​ ​ — ​ ​ — ​ ​ 29 Conversion of Class B to Class A common stock ​ 410,000 ​ ​ — ​ ( 410,000 ) ​ ​ — ​ ​ 145 ​ ​ — ​ ​ ( 145 ) ​ ​ — Acquisition and redemption of warrants, including expenses and related items ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 3,540 ) ​ ​ — ​ ​ — ​ ​ ( 3,540 ) Additional paid-in capital related to tax receivable agreement ​ — ​ ​ — ​ — ​ ​ — ​ ​ 250 ​ ​ — ​ ​ — ​ ​ 250 Net loss — ​ — — ​ — ​ ​ — ​ ( 2,194 ) ​ ( 4,650 ) ​ ​ ( 6,844 ) Noncontrolling interest rebalancing ​ — ​ — — ​ — ​ ​ 2,744 ​ ​ — ​ ​ ( 2,744 ) ​ ​ ​ Balance, December 31, 2023 3,478,776 ​ $ 3 10,868,000 ​ $ 11 ​ $ 3,067 ​ $ ( 2,538 ) ​ $ ( 4,225 ) ​ $ ( 3,682 ) ​ See accompanying notes to the consolidated financial statements. ​ 70 Table of Contents DIRECT DIGITAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ 2023 2022 Cash Flows Provided By Operating Activities: ​ ​ ​ ​ Net (loss) income $ ( 6,844 ) ​ $ 4,167 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Amortization of deferred financing costs 615 ​ 598 Amortization of intangible assets ​ ​ 1,954 ​ ​ 1,954 Reduction in carrying amount of right-of-use assets ​ ​ 164 ​ ​ 137 Depreciation and amortization of property, equipment and software ​ ​ 253 ​ ​ 34 Stock-based compensation ​ 706 ​ 154 Forgiveness of Paycheck Protection Program loan — ​ ​ ( 287 ) Deferred income taxes ​ ​ 568 ​ ​ 105 Loss on redemption of non-participating preferred units — ​ ​ 590 Revaluation of tax receivable agreement liability ​ ​ ( 331 ) ​ ​ — Loss on early termination of line of credit ​ ​ 300 ​ ​ — Provision for credit losses/bad debt expense ​ 422 ​ ​ 17 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ( 11,275 ) ​ ​ ( 18,500 ) Prepaid expenses and other assets 201 ​ ​ 307 Accounts payable 16,231 ​ ​ 10,966 Accrued liabilities and TRA payable ( 8 ) ​ ​ 2,618 Income taxes payable ​ ​ ( 140 ) ​ ​ 174 Deferred revenues ( 166 ) ​ ​ ( 801 ) Operating lease liability ​ ​ ( 92 ) ​ ​ ( 98 ) Related party payable — ​ ​ ( 71 ) Net cash provided by operating activities 2,558 ​ ​ 2,064 ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Investing Activities: ​ ​ ​ ​ ​ ​ Cash paid for capitalized software and property and equipment ​ ​ ( 178 ) ​ ​ ( 688 ) Net cash used in investing activities ​ ​ ( 178 ) ​ ​ ( 688 ) ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Financing Activities: ​ ​ ​ ​ Proceeds from note payable ​ ​ 3,516 ​ ​ 4,260 Payments on term loan ( 677 ) ​ ​ ( 576 ) Proceeds from lines of credit ​ ​ 5,000 ​ ​ — Payments on lines of credit ​ ​ ( 2,000 ) ​ ​ ( 400 ) Payment of deferred financing costs ( 576 ) ​ ​ ( 525 ) Proceeds from Issuance of Class A Common Stock, net of transaction costs — ​ ​ 11,167 Acquisition and redemption of warrants, including expenses ​ ​ ( 3,540 ) ​ ​ — Redemption of common units — ​ ​ ( 7,200 ) Redemption of non-participating preferred units ​ ​ — ​ ​ ( 7,046 ) Proceeds from options exercised ​ ​ 29 ​ ​ — Proceeds from warrants exercised 122 ​ ​ — Distributions to holders of LLC Units ( 3,185 ) ​ ​ ( 1,693 ) Net cash used in financing activities ​ ​ ( 1,311 ) ​ ​ ( 2,013 ) ​ ​ ​ ​ ​ ​ ​ Net increase (decrease) in cash and cash equivalents 1,069 ​ ​ ( 637 ) Cash and cash equivalents, beginning of the period ​ 4,047 ​ 4,684 Cash and cash equivalents, end of the period ​ $ 5,116 ​ $ 4,047 ​ ​ ​ ​ ​ ​ ​ Supplemental Disclosure of Cash Flow Information: ​ ​ ​ Cash paid for taxes ​ $ 361 ​ $ 47 Cash paid for interest ​ $ 3,736 ​ $ 2,568 ​ ​ ​ ​ ​ ​ ​ Non-cash Activities: ​ ​ ​ ​ Property and equipment purchased included in accounts payable ​ $ — ​ $ 19 Outside basis difference in partnership ​ $ 1,536 ​ $ 5,270 Tax receivable agreement payable to Direct Digital Management, LLC ​ $ 1,286 ​ $ 4,332 Tax benefit on tax receivable agreement ​ $ 250 ​ $ 823 Prepaid distributions to holders of LLC Units included in related party receivable ​ $ 1,737 ​ $ — See accompanying notes to the consolidated financial statements. ​ ​ 71 Table of Contents Note 1 — Organization and Description of Business Direct Digital Holdings, Inc., incorporated as a Delaware corporation on August 23, 2021 and headquartered in Houston, Texas, together with its subsidiaries, operates an end-to-end, programmatic advertising platform primarily focused on providing advertising technology, data-driven campaign optimization and other solutions intended for underserved and less efficient markets on both the sell- and buy-side of the digital advertising ecosystem. Direct Digital Holdings, Inc. is the holding company for Direct Digital Holdings, LLC (“DDH LLC”), which is, in turn, the holding company for the business formed by DDH LLC’s founders in 2018 through the acquisition of Colossus Media, LLC (“Colossus Media”) and Huddled Masses, LLC (“Huddled Masses ® ” or “Huddled Masses”). Colossus Media operates the Company’s proprietary sell-side programmatic platform operating under the trademarked banner of Colossus SSP TM (“Colossus SSP”). In late September 2020, DDH LLC acquired Orange142, LLC (“Orange 142”) to further bolster its overall programmatic buy-side advertising platform and to enhance its offerings across multiple industry verticals such as travel, healthcare, education, financial services, consumer products, and other sectors with particular emphasis intended for small and mid-sized businesses transitioning into digital with growing digital media budgets. In February 2022, Direct Digital Holdings, Inc. completed an initial public offering of its securities and, together with DDH LLC, effected a series of transactions (together, the “Organizational Transactions”) whereby Direct Digital Holdings, Inc. became the sole managing member of DDH LLC, the holder of 100 % of the voting interests of DDH LLC and the holder of 19.7 % of the economic interests of DDH LLC, commonly referred to as an “Up-C” structure. (See Note 6 – Related Party Transactions). In these consolidated financial statements, the “Company,” “Direct Digital,” “Direct Digital Holdings,” “DDH,” “we,” “us” and “our” refer (i) following the completion of the Organizational Transactions, including the initial public offering, to Direct Digital Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including DDH LLC, and, unless otherwise stated, its subsidiaries, and (ii) on or prior to the completion of the Organizational Transactions, to DDH LLC and, unless otherwise stated, its subsidiaries. All of the subsidiaries are incorporated in the state of Delaware, except for DDH LLC, which was formed under the laws of the State of Texas. The subsidiaries of Direct Digital Holdings, Inc. are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current % ​ Business ​ ​ ​ ​ Subsidiary Ownership Segment Date of Formation Date of Acquisition Colossus Media, LLC 100.0 % Sell-side ​ September 8, 2017 ​ June 21, 2018 Orange142, LLC 100.0 % Buy-side ​ March 6, 2013 ​ September 30, 2020 Huddled Masses, LLC 100.0 % Buy-side ​ November 13, 2012 ​ June 21, 2018 Direct Digital Holdings, LLC (1) ​ ​ N/A ​ June 21, 2018 ​ February 15, 2022 (1) DDH owns 100 % of the voting interest in Direct Digital Holding, LLC. As of December 31, 2023, DDH owns 24.2 % of the economic interest in Direct Digital Holdings, LLC. See further discussion of the Up-C structure in Note 6 of our consolidated financial statements. Colossus SSP is a stand-alone platform intended to deliver targeted advertising to diverse and multicultural audiences as well as to general audiences. Both buy-side subsidiaries, Orange 142 and Huddled Masses, offer technology-enabled advertising solutions and consulting services to clients through demand side platforms (“DSPs”). ​ Providing both the front-end, buy-side operations coupled with the Company’s proprietary sell-side operations enables the Company to curate the first through the last mile in the ad tech ecosystem execution process to drive higher results. 72 Table of Contents Note 2 — Basis of Presentation and Consolidation and Summary of Significant Accounting Policies Basis of presentation and consolidation The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented. The consolidated financial statements include the accounts of Direct Digital Holdings, Inc. and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards otherwise applicable to public companies until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) it affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The adoption dates discussed below reflect this election. Revenue recognition The Company recognizes revenue using the following five steps: 1) identification of a contract with a customer; 2) identification of the performance obligation(s) in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligation(s) in the contract; and 5) recognition of revenue when, or as, the performance obligation(s) are satisfied. The Company’s revenues are derived primarily from two sources: sell-side advertising and buy-side advertising. Thus, the Company disaggregates the revenue earned into these two segments. For additional segment disclosures, refer to Note 7 of our consolidated financial statements. The Company maintains agreements with its customers in the form of written service agreements, which set out the terms of the relationship, including payment terms (typically 30 to 90 days ) and access to its platform. For the sell-side advertising segment, the Company generates revenue by selling advertising inventory (digital ad units) that the Company purchases from publishers to advertisers through a process of monetizing ad impressions on the Company’s proprietary sell-side programmatic platform operating under the trademarked banner Colossus SSP. For the buy-side advertising segment, the Company generates revenue from customers that enter into agreements with the Company to provide managed advertising campaigns, which include digital marketing and media services to purchase digital advertising space, data and other add-on features. In connection with the Company’s analysis of principal vs agent considerations, the Company has evaluated the specified goods or services and considered whether the Company controls the goods or services before they are provided to the customer, including the three indicators of control. Based upon this analysis and the Company’s specific facts and circumstances, the Company concluded that it is a principal for the goods or services sold through both the Company’s sell-side advertising segment and buy-side advertising segment because the Company controls the specified good or service before it is transferred to the customer and the Company is the primary obligor in the agreement with customers. Therefore, the Company reports revenue on a gross basis inclusive of all supplier costs and pays suppliers for the cost of digital media, advertising inventory, data and any add-on services or features. Sell-side advertising The Company partners with publishers to sell advertising inventory to the Company’s Colossus Media-curated clients and the open markets (collectively referred to as “buyers”) seeking to access the general market as well as unique multi-cultural audiences. The Company generates revenue from the delivery of targeted digital media solutions, enabling advertisers to connect intelligently with their audiences across online display, video, social and mobile mediums using its proprietary programmatic sell-side platform (“SSP”). The Company refers to its publishers, app developers, and channel partners collectively as its “publishers.” The Company generates revenue through the monetization of publisher ad 73 Table of Contents impressions on its platform. The Company’s platform allows the Company to sell, in real time, ad impressions from publishers to buyers and provides automated inventory management and monetization tools to publishers across various device types and digital ad formats. The Company recognizes revenue at a point in time when an ad is delivered or displayed in response to a winning bid request from ad buyers. Buy-side advertising The Company purchases media based on the budget established by its customers with a focus on leveraging data services, customer branding, real-time market analysis and micro-location advertising. The Company offers its services on a fully managed basis, which is recognized over time using the output method when the performance obligation is fulfilled. An “impression” is delivered when an advertisement appears on pages viewed by users. The performance obligation is satisfied over time as the volume of impressions are delivered up to the contractual maximum. Many customers run several different campaigns throughout the year to capitalize on different seasons, special events and other happenings at their respective regions and localities. The Company provides digital advertising and media buying capabilities with a focus on generating measurable digital and financial life for its customers. Revenue arrangements are evidenced by a fully executed insertion order (“IO”) and/or a master service agreement (“MSA”) covering a combination of marketing tactics. Generally, IOs specify the number and type of advertising impressions to be delivered over a specified time at an agreed upon price and performance objectives for an ad campaign. Performance objectives are generally a measure of targeting, as defined by the parties in advance, such as number of ads displayed, consumer clicks on ads or consumer actions (which may include qualified leads, registrations, downloads, inquiries or purchases). These payment models are commonly referred to as CPM (cost per impression), CPC (cost per click) and CPA (cost per action). The majority of the Company’s contracts are flat-rate, fee-based contracts. Cash payments received prior to the Company’s delivery of its services are recorded to deferred revenue until the performance obligation is satisfied. The Company recorded deferred revenue (contract liabilities) to account for billings in excess of revenue recognized, primarily related to contractual minimums billed in advance and customer prepayment, of $ 0.4 million and $ 0.5 million as of December 31, 2023 and 2022, respectively. Revenue recognized during 2023 and 2022 from amounts included within the deferred revenue balances at the beginning of each respective period amounted to $ 0.5 million and $ 1.3 million, respectively. Accounting Standards Codification (“ASC”) 606 provides various optional practical expedients. The Company elected the use of the practical expedient relating to the disclosure of remaining performance obligations within a contract and will not disclose remaining performance obligations for contracts with an original expected duration of one year or less. Goodwill As of December 31, 2023 and 2022, goodwill was $ 6.5 million, which includes $ 2.4 million as a result of the acquisition of Huddled Masses and Colossus Media in 2018 and $ 4.1 million from the acquisition of Orange 142 in 2020. The Company expects to deduct goodwill for tax purposes in future years. Goodwill is attributable to entry into new markets not previously accessible and generation of future growth opportunities. Goodwill is assessed for impairment at least annually (December 31) starting with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in our management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative goodwill impairment analysis is performed. Depending upon the results of the quantitative measurement, the recorded goodwill may be written down and an impairment expense is recorded in the consolidated statements of operations when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. Goodwill is reviewed annually and tested for impairment upon the occurrence of a triggering event. The Company determined that there was no impairment of goodwill during the years ended December 31, 2023 and 2022. 74 Table of Contents Intangible assets, net Intangible assets consist of customer relationships, trademarks and non-compete agreements. Intangible assets are recorded at fair value at the time of their acquisition and are stated within the consolidated balance sheets net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives and recorded as amortization expense within general and administrative expenses in the consolidated statements of operations. The Company’s intangible assets are being amortized over their estimated useful lives, using the straight-line method with non-compete agreements over 5 years and other intangibles over 10 years . Impairment of long-lived assets The Company evaluates the recoverability of long-lived assets, including property, equipment and software costs and intangible assets if facts or circumstances indicate that any of those assets might be impaired. ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows to determine if a write-down to fair value is necessary. No impairment loss was recognized during the years ended December 31, 2023 and 2022. Stock-based compensation Stock-based compensation cost for options and restricted stock units (“RSU”) awarded to employees and directors is measured at the grant date based on the calculated fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). Contingently issued awards with a requisite service period that precedes the grant date are measured and recognized at the start of the requisite service period and remeasured each reporting period until the grant date. The Company estimates the fair value of RSU’s based on the closing price of the Company’s common stock on the date of the grant. The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the fair value of the Company’s common stock, as well as assumptions regarding the expected common stock price volatility over the term of the stock options, the expected term of the stock options, risk-free interest rates and the expected dividend yield. Given the Company’s short history as a public company, the expected volatility is determined based on the trading history of several unrelated public companies within the industry that the Company considers to be comparable and the expected term is determined based on a combination of terms of the stock options and peer data. The risk-free interest rate is derived using the U.S. Treasury yield curve in effect at date of grant. Other assumptions are based on historical experience and activity. The Company considers an estimated forfeiture rate for stock options based on historical experience and the anticipated forfeiture rates during the future contract life. The fair value of the Company’s stock options was estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average input assumptions used by the Company were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 ​ Grant date fair value ​ $ 2.44 ​ $ 1.01 ​ Expected term ​ ​ 6.0 ​ ​ 6.0 ​ Expected volatility ​ ​ 69 % ​ 63 % Risk-free interest rate ​ ​ 3.70 % ​ 3.25 % Exercise price ​ $ 3.78 ​ $ 1.68 ​ Dividend yield ​ ​ — ​ ​ — ​ ​ Employee benefit plans The Company sponsors a safe harbor, defined contribution 401(k) and profit-sharing plan (the “Plan”) that allows eligible employees to contribute a percentage of their compensation. The Company matches employee contributions up to 75 Table of Contents a maximum of 100 % of the participant’s salary deferral, limited to 4 % of the employee’s salary. For the years ended December 31, 2023 and 2022, the Company’s matching contributions were $ 0.2 million and $ 0.2 million, respectively. Although the Company may make a discretionary profit-sharing contribution to the Plan, during the years ended December 31, 2023 and 2022, no profit-sharing contributions were made. The Company has an Employee Benefit Plan Trust (the “Trust”) to provide for the payment or reimbursement of all or a portion of covered medical, dental and prescription expenses for the employees of the Company. The Trust is funded with contributions made by the Company and participating employees at amounts sufficient to keep the Trust on an actuarially sound basis. The self-funded plan has an integrated stop loss insurance policy for the funding of the Trust benefits in excess of the full funding requirements. As of December 31, 2023 and 2022, the Company recorded an estimated liability for incurred but not recognized claims in accrued liabilities in an amount which was less than $ 0.1 million. The Company also has an incentive plan for executives and employees of the Company which provides for performance based awards payable in cash or stock-based compensation as determined by the Compensation Committee of the Company’s Board of Directors. There was $ 2.4 million and $ 2.3 million recognized during the years ended December 31, 2023 and 2022, respectively, for awards pursuant to this plan. $ 1.4 million of the 2023 awards was recorded as stock-based compensation in compensation, taxes and benefits with the remainder of 2023 and all of 2022 recorded as compensation expense in compensation, taxes and benefits and payable in cash subsequent to the applicable year end. Income taxes In February 2022, concurrent with the Organizational Transactions, the Company entered into a tax receivable agreement (“Tax Receivable Agreement” or “TRA”) with DDH LLC and Direct Digital Management, LLC (“DDM”). The TRA provides for certain income (loss) allocations between the Company and DDH LLC under the agreement. DDH LLC is a limited liability company, is treated as a partnership for federal income tax purposes and generally is not subject to any entity-level U.S. federal income tax and certain state and local income taxes. Any taxable income or loss generated by the Company is allocated to holders of LLC units (“LLC Units”) in accordance with the Second Amended and Restated Limited Liability Company Agreement (“LLC Agreement”), and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss under the LLC Agreement. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code (the “Code”), the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC Units are redeemed or exchanged by the members of DDH, LLC. The Company made an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurred. During the years ended December 31, 2023 and 2022, members of DDM exchanged 410,000 and 100,000 shares of Class B Common Stock into shares of Class A Common Stock, respectively. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of a valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. As of December 31, 2023 and 2022, the Company recorded a valuation allowance of $ 0.5 million and $ 0 , respectively. Accounts receivable, net Accounts receivable primarily consists of billed amounts for products and services rendered to customers under normal trade terms. The Company performs credit evaluations of its customers’ financial condition and generally does not require collateral. Accounts receivable are stated at net realizable value. The Company insures a significant portion of its accounts receivable with unrelated third-party insurance companies in an effort to mitigate any future write-offs and establishes provision for credit losses as deemed necessary for accounts not covered by this insurance. Management periodically reviews outstanding accounts receivable for reasonableness. If warranted, the Company processes a claim 76 Table of Contents with the third-party insurance company to recover uncollected balances, rather than writing the balances off to bad debt expense. The guaranteed recovery for the claim is approximately 90 % of the original balance, and if the full amount is collected by the insurance company, the remaining 10 % is remitted to the Company. If the insurance company is unable to collect the full amount, the Company records the remaining 10 % to bad debt expense. The Company’s provision for credit losses reflects the current expected credit loss inherent in the accounts receivable considering the Company’s aging analysis, historical collection experience, customer creditworthiness, current and future economic conditions and market conditions. Accounts receivable balances are written off against the provision when the Company believes it is probable the receivable will not be recovered. Bad debt expense was approximately $ 0.4 million and less than $ 0.1 million for the years ended December 31, 2023 and 2022, respectively. The following table presents the changes in the provision for credit losses (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2023 2022 Beginning balance ​ $ 4 ​ $ 41 Provision for credit losses ​ 369 ​ 10 Write-offs, net of recoveries ​ ( 29 ) ​ ( 47 ) Ending balance ​ $ 344 ​ $ 4 ​ Concentrations of customers and suppliers There is an inherent concentration of credit risk associated with accounts receivable arising from revenue from major customers on both the sell-side and buy-side of the business. For the years ended December 31, 2023 and 2022, one customer of the sell-side of the business represented 73 % and 63 % of revenues, respectively. As of December 31, 2023 and 2022, one customer of the sell-side of the business accounted for 83 % and 80 %, respectively, of accounts receivable. As of December 31, 2023 and 2022, three sellers of advertising inventory each accounted for at least 10%, and collectively accounted for 57 % and 63 %, respectively, of consolidated accounts payable. Accrued Liabilities The components of accrued liabilities on the balance sheet as of December 31, 2023 and 2022 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Accrued compensation and benefits ​ $ 2,789 ​ $ 3,129 Accrued expenses ​ 631 ​ 207 Accrued severance ​ ​ 189 ​ ​ — Accrued litigation settlement (1) ​ 171 ​ 429 Accrued interest ​ 36 ​ 13 Total accrued liabilities ​ $ 3,816 ​ $ 3,778 ​ (1) In July 2022, the Company entered into a litigation settlement agreement with a vendor of Huddled Masses related to a delinquent balance from 2019 and agreed to pay a total of $ 0.5 million with monthly installment payments over 24 months beginning September 1, 2022. Segment information Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) for purpose of allocating resources and assessing performance. The Company’s CODM is its Chairman and Chief Executive Officer. The Company operates two reportable segments: sell-side advertising, which includes the results of Colossus Media, and buy-side advertising, which includes the results of Orange 142 and Huddled Masses. All of the Company’s revenues are attributed to the United States. 77 Table of Contents Cost of revenues Sell-side advertising The Company pays publishers a fee, which is typically a percentage of the value of the ad impressions monetized through the Company’s platform. Cost of revenues consists primarily of publisher media fees and data center co-location costs. Media fees include the publishing and real-time bidding costs to secure advertising space. Buy-side advertising Cost of revenues consists primarily of digital media fees, third-party platform access fees, and other third-party fees associated with providing services to the Company’s customers. Operating expenses Operating expenses consist of compensation expenses related to our executive, sales, finance and administrative personnel (including salaries, commissions, stock-based compensation, bonuses, benefits and taxes); general and administrative expenses (including rent expense, professional fees, independent contractor costs, selling and marketing fees, administrative and operating system subscription costs, insurance, and amortization expense related to our intangible assets); and other expense (including transactions that are unusual in nature or which are occurring infrequently). See further discussion of Other Expenses within Operating Expenses for the year ended December 31, 2023 in Note 9 of the consolidated financial statements. Advertising costs The Company expenses advertising costs as incurred. Advertising expense incurred during the years ended December 31, 2023 and 2022 was $ 2.2 million and $ 0.9 million, respectively. These costs are included in general and administrative expenses in the consolidated statements of operations. Cash and cash equivalents Cash and cash equivalents consist of funds deposited with financial institutions and highly liquid instruments with original maturities of three months or less. Such deposits may, at times, exceed federally insured limits. The risk of loss attributable to any uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The Company has not experienced any losses in such amounts and believes it is not exposed to any significant credit risk to cash. Property, equipment and software, net Property and equipment are recognized in the consolidated balance sheets at cost less accumulated depreciation and amortization. The Company capitalizes purchases and depreciates its property and equipment using the straight-line method of depreciation over the estimated useful lives of the respective assets, generally ranging from three to five years . Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related leases. The Company capitalizes costs related to the development of internal-use software. Costs incurred during the application development phase are capitalized and amortized using the straight-line method over the estimated useful life, estimated at three years . The cost of repairs and maintenance are expensed as incurred. Major renewals or improvements that extend the useful lives of the assets are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gain or loss is recognized in the consolidated statements of operations. 78 Table of Contents Leases The Company has operating leases for real estate. Operating leases are included in Operating Lease Right of Use ("ROU") Assets and Operating Lease Liabilities on the consolidated balance sheets. Operating lease asset and liability amounts are measured and recognized based on discounted future cash flow payment amounts the Company expects to make over the expected term of the underlying leases, including renewal periods the Company is reasonably certain to exercise. The lease liability for leases expected to be settled in twelve-months or less are classified as current liabilities. The general terms of the Company’s lease agreements require monthly payments. Because the Company does not generally have access to the rate implicit in its leases, the Company utilizes its incremental borrowing rate as the discount rate for measuring the lease liability. At commencement, the operating lease ROU asset and lease liability are the same, with adjustments to the ROU asset for lease incentives and initial direct costs incurred. The Company reviews all options to extend, terminate or purchase its ROU assets at the commencement of the lease and on an ongoing basis and accounts for these options when they are reasonably certain of being exercised. The Company evaluates lease modifications as they occur and records such as a separate lease or an adjustment to the existing ROU asset and lease liability as appropriate. Operating lease expense is recorded on a straight-line basis over the lease term with amortization of the ROU asset calculated as the difference between the straight-line operating lease expense and the implied interest expense on the lease liability. On the statement of cash flows, operating lease expense is included in operating cash flows. Deferred offering costs The Company records certain legal, accounting and other third-party fees that are directly associated with an offering to stockholders’ equity or debt in the event that the Company completes an offering. Costs associated with debt offerings are amortized to interest expense using the straight-line method over the life of the debt. As of December 31, 2023 and 2022, $ 1.7 million and $ 2.1 million, respectively, of unamortized deferred financing costs are netted against debt in the consolidated balance sheets. Business combinations The Company includes the results of operations of the businesses that are acquired as of the respective dates of acquisition. The Company allocates the fair value of the purchase price of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The Company estimates and records the fair value of purchased intangible assets, which primarily consists of customer relationships, trademarks, and non-compete agreements. The excess of the fair value of the purchase price over the fair values of these identifiable assets, both tangible and intangible, and liabilities is recorded as goodwill. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. The Company bases its estimates on past experiences, market conditions, and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis. The Company uses estimates to determine many reported amounts, including but not limited to gross vs net assessment in revenue recognition, recoverability of goodwill and long-lived assets, useful lives used in amortization of intangibles, income taxes and valuation allowances, stock-based compensation and fair values of assets and liabilities acquired in business combinations. Fair value measurements The Company employs a hierarchy which prioritizes the inputs used to measure recurring fair value into three distinct categories based on the lowest level of input that is significant to the fair value measurement. The methodology for 79 Table of Contents categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest levels to unobservable inputs, summarized as follows: ● Level 1 – Quoted prices in active markets for identical assets or liabilities. ● Level 2 – Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities). ● Level 3 – Significant unobservable inputs (including our own assumptions in determining fair value). We use the cost, income or market valuation approaches to estimate the fair value of our assets and liabilities when insufficient market-observable data is available to support our valuation assumptions. Fair value of financial instruments The Company considers the fair value of all financial instruments, including cash, accounts receivable and accounts payable to approximate their carrying values at year-end due to their short-term nature. The carrying value of the Company’s debt approximates fair value due to the market rates of interest. Net income (loss) per share Basic net income (loss) per share excludes dilution and is determined by dividing net income (loss) by the weighted average number of common shares outstanding including participating securities during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock. Recent Accounting Pronouncements Accounting pronouncements adopted in 2023 In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company adopted this ASU effective January 1, 2023. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements. Accounting pronouncements not yet adopted In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for emerging growth companies for annual periods beginning after December 15, 2025. This accounting standard is effective in the first quarter of the Company's fiscal year ending December 31, 2026. The Company is currently evaluating the impact of adoption on our financial disclosures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures. The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the CODM. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this 80 Table of Contents ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of adoption on our financial disclosures. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements. Liquidity and capital resources Going Concern The Company evaluated whether relevant conditions or events, considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Substantial doubt exists when conditions and events, considered in the aggregate, indicate it is probable that a company will not be able to meet its obligations as they become due within one year after the issuance date of its financial statements. Management’s assessment is based on the relevant conditions that are known or reasonably knowable as of the date these consolidated financial statements were issued or were available to be issued. As discussed in Note 9, one of the Company’s sell-side customers paused its connection to the Company for a couple of weeks in May 2024, which reduced sell-side sales volumes. As of the date of this report, sell-side volumes related to this customer have resumed but not yet at the levels experienced prior to the pause in May 2024 which has created significant disruption in the Company’s sell-side business. The Company is actively working with its partners to achieve prior volume levels. However, there can be no assurance that the Company will be able to achieve prior volume levels with its partners or on the timing of achieving such volume levels. Additionally, the Company (1) incurred a net loss of $ 6.8 million in 2023 primarily related to payments made to a few publishers of $ 8.8 million associated with a disputed short payment from a customer, (2) reported an accumulated deficit of $ 2.5 million as of December 31, 2023, (3) reported cash and cash equivalents of $ 5.1 million as of December 31, 2023, (4) has borrowed $ 3.0 million and $ 9.7 million as of December 31, 2023 and the date of this report, respectively, under the Credit Agreement which matures in July 2025, (5) was notified on April 17, 2024 that the Company’s auditor had resigned and (6) was unable to timely file its 2023 annual report and quarterly reports for the first two quarters of 2024. The delay in filing the Company’s annual and quarterly reports disrupted existing capital-raising efforts and created additional audit, legal and other expenses. These factors raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months. The Company anticipates sources of liquidity to include cash on hand and cash flow from operations and has taken several actions to address liquidity concerns. These actions include (1) a plan to reduce expenses through a staff reduction, a pause on hiring and cost savings measures that were executed on July 1, 2024, (2) working with lenders to provide temporary relief from debt covenants (see Note 3 – Long-Term Debt) while rebuilding sell-side volumes, (3) raising capital through arrangements with various providers, and (4) regaining compliance with respect to delinquent SEC filings which will allow the Company to access the capital markets as well as other financing sources. There can be no assurance that the Company’s actions will be successful or that additional financing will be available when needed or on acceptable terms. The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern. Correction of Immaterial Errors in Prior Consolidated Financial Statements For the quarter ended September 30, 2023 , the Company identified a prior period accounting error in the Company’s previously reported unaudited interim consolidated financial statements beginning June 30, 2022 resulting from the incorrect accounting for granted but unvested restricted stock units. For the year ended December 31, 2023, the Company 81 Table of Contents identified prior year accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for and presentation of noncontrolling interests (NCI), (2) recognition of an organizational transaction, and (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI . Based on management’s evaluation of the errors in consideration of the SEC Staff’s Accounting Bulletins Topic 1.M, Materiality and Topic 1.N, Considering the Effects of Misstatements when Quantifying Misstatements in the Current Year Financial Statements and interpretations therewith, the Company concluded these errors are not material to the Company’s previously reported financial statements included in the 2022 Form 10-K filed on April 17, 2023. The following tables reflect the impact of the correction of these immaterial errors (in thousands): ​ ​ ​ ​ ​ ​ ​ Consolidated Balance Sheet as of December 31, 2022 As Reported As Revised Accrued liabilities ​ $ 4,778 ​ $ 3,778 Total current liabilities ​ $ 25,572 ​ $ 24,572 Total liabilities ​ $ 53,531 ​ $ 52,531 Class A Common Stock Units ​ ​ 3,253 ​ ​ 2,900 Class A Common Stock Amount ​ $ 3 ​ $ 3 Additional paid-in capital ​ $ 8,224 ​ $ 2,611 Accumulated deficit ​ $ ( 3,643 ) ​ $ ( 344 ) Total stockholders’ equity attributable to Direct Digital Holdings, Inc. ​ $ 4,595 ​ $ 2,281 Noncontrolling interest ​ $ — ​ $ 3,314 Total stockholders’ equity ​ $ 4,595 ​ $ 5,595 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated Statement of Operations for the Twelve Months Ended December 31, 2022 As Reported As Revised Net income attributable to non-controlling interests ​ $ — ​ $ 3,962 Net income attributable to Direct Digital Holdings, Inc. ​ $ 4,167 ​ $ 205 Basic net income per share ​ $ 0.33 ​ $ 0.11 Diluted net income per share ​ $ 0.33 ​ $ 0.11 Weighted-average number of shares of common stock outstanding - basic ​ ​ 12,638 ​ ​ 2,848 Weighted-average number of shares of common stock outstanding - dilutive ​ ​ 12,638 ​ ​ 2,891 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consolidated Statement of Changes in Stockholders' Equity as of December 31, 2022 As Reported As Revised Class A Common Stock Units ​ ​ 3,253 ​ ​ 2,900 Class A Common Stock Amount ​ $ 3 ​ $ 3 Additional Paid-in Capital ​ $ 8,224 ​ $ 2,611 Accumulated Deficit ​ $ ( 3,643 ) ​ $ ( 344 ) Noncontrolling Interest ​ $ — ​ $ 3,314 Total Stockholders’ Equity ​ $ 4,595 ​ $ 5,595 ​ ​ ​ ​ ​ ​ ​ Consolidated Statement of Changes in Stockholders' Equity for the Twelve Months Ended December 31, 2022 ​ ​ ​ ​ ​ ​ Distributions to members (Accumulated Deficit) ​ $ ( 3,141 ) ​ $ — Distributions to holders of LLC Units (NCI) ​ $ — ​ $ ( 3,141 ) Issuance of restricted stock units ​ ​ 378 ​ ​ — Restricted stock forfeitures units ​ ​ ( 25 ) ​ ​ — Net loss prior to Organizational Transactions ​ $ — ​ $ ( 464 ) Net income (Accumulated Deficit) ​ $ 4,167 ​ $ 669 Net income (NCI) ​ $ — ​ $ 3,962 ​ ​ 82 Table of Contents Note 3 — Long-Term Debt At December 31, 2023 and 2022, long-term debt consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2023 2022 2021 Credit Facility ​ $ 28,594 ​ $ 25,684 Credit Agreement ​ 3,000 ​ — Economic Injury Disaster Loan ​ 150 ​ 150 Total long-term debt ​ 31,744 ​ 25,834 Less: deferred financing costs ​ ( 1,688 ) ​ ( 2,115 ) Total long-term debt, net of deferred financing costs ​ 30,056 ​ 23,719 Less: current portion ​ ( 1,478 ) ​ ( 655 ) Total long-term debt, net of current portion ​ $ 28,578 ​ $ 23,064 ​ Lafayette Square On December 3, 2021, the Company entered into the Term Loan and Security Agreement (the “2021 Credit Facility”) with Lafayette Square Loan Services, LLC (“Lafayette Square”) as administrative agent, and the various lenders thereto. The term loan under the 2021 Credit Facility initially provided for a term loan in the principal amount of up to $ 32.0 million, consisting of a $ 22.0 million closing date term loan (the “Term Loan”) and an up to $ 10.0 million delayed draw term loan (the “Delayed Draw Loan”). The loans under the 2021 Credit Facility originally bore interest at LIBOR plus the applicable margin minus any applicable impact discount. The applicable margin under the 2021 Credit Facility was determined based on the consolidated total net leverage ratio of the Company and its consolidated subsidiaries, at a rate of 6.50 % per annum if the consolidated total net leverage ratio is less than 2.00 to 1.00 and up to 9.00 % per annum if the consolidated total net leverage ratio was greater than 4.00 to 1.00. On June 1, 2023, as originally contemplated under the 2021 Credit Facility, the Company entered into an agreement with Lafayette Square to convert the existing LIBOR based rate to a Term Secured Overnight Financing Rate (“SOFR”) with a credit spread of 0.15 % per annum for the interest periods of three months and providing for a credit spread adjustment of 0.10 %, 0.15 % or 0.25 % per annum for interest periods of one month, three months or six months, respectively. The loans under the 2021 Credit Facility bear interest at SOFR plus the applicable credit spread adjustment plus the applicable margin minus any applicable impact discount. Prior to entering into the Fifth Amendment (as defined below), the applicable margin under the 2021 Credit Facility was based on the consolidated total net leverage ratio of the Company at a rate of 7.00 % per annum if the consolidated total net leverage ratio was less than or equal to 1.00 to 1.00 with gradual increases as the ratio increased up to 10.00 % per annum if the consolidated total net leverage ratio was greater than 3.50 to 1.00. The maturity date of the 2021 Credit Facility is December 3, 2026. On July 28, 2022, the Company entered into the Second Amendment and Joinder to Term Loan and Security Agreement and received proceeds of $ 4.3 million borrowed under the Delayed Draw Loan to pay the balance owed on the common unit redemption as well as costs associated with the transaction. Subsequently, on October 3, 2023, the Company entered into the Fourth Amendment to the 2021 Credit Facility (the “Fourth Amendment”) and received proceeds of $ 3.6 million borrowed under the Delayed Draw Loan to make payments in connection with the consummation of the 2023 warrant tender offer and fees and expenses incurred as described in Note 4 – Stockholders’ Equity and Stock-Based Compensation in the notes to the consolidated financial statements. In connection with the Fourth Amendment, the Company agreed it would not be permitted to request any additional funds under the Delayed Draw Loan, and Lafayette Square would not be obligated to fund any such requests. Quarterly installment payments on the Term Loan and the Delayed Draw Loan, due on the last day of each fiscal quarter, began March 31, 2022 with a final installment due December 3, 2026 for remaining balances outstanding under each loan. Each quarterly installment payment under the closing date term loan was $ 137,000 from January 1, 2022 through December 31, 2023, and each installment payment thereafter until maturity is $ 275,000 . Each quarterly installment payment under the Delayed Draw Loan was 0.625 % of the amount of the Delayed Draw Loan through December 31, 2023, and each installment payment thereafter until maturity is 1.25 % of the amount of the Delayed Draw Loan. 83 Table of Contents Under the 2021 Credit Facility, dividends and distributions by DDH LLC to the Company and any shareholders of the Company are permitted so long as (i) no default or event of default is continuing or would occur after giving pro forma effect to such dividends and distributions under the 2021 Credit Facility, (ii) the Company, on a pro forma basis, maintains a consolidated senior net leverage ratio of not greater than 1.5 to 1.0, and (iii) the Company, on a pro forma basis, maintains liquidity of not less than $ 15,000,000 . The obligations under the 2021 Credit Facility are secured by senior, first-priority liens on all or substantially all assets of the Company. As of December 31, 2023, the Company owed a balance on the 2021 Credit Facility of $ 28.6 million. Additional deferred financing costs of less than $ 0.1 million and $ 0.5 million were incurred during the year ended December 31, 2023 and 2022, respectively. Unamortized deferred financing costs as of December 31, 2023 and 2022 were $ 1.7 million and $ 2.1 million, respectively. Accrued and unpaid interest was $ 0 as of December 31, 2023 and 2022. The 2021 Credit Facility contains customary affirmative and negative covenants. Prior to entering into the Fifth Amendment, the Company was required to maintain a net leverage ratio of no more than 3.50 to 1.00 as of December 31, 2021 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025, 3.00 to 1.00 as of June 30, 2025 and September 30, 2025, with incremental tightening of the ratio to 2.50 to 1.00 as of June 30, 2026 and thereafter through maturity. Prior to entering to the Fifth Amendment, the 2021 Credit Facility also required the Company to maintain a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as well as restrictions on the ability to incur indebtedness, create certain liens, make certain investments, make certain dividends and other types of distributions, and enter into or undertake certain mergers, consolidations, acquisitions and sales of certain assets and subsidiaries. The Company was in compliance with all the financial covenants under the 2021 Credit Facility as of December 31, 2023. With the Fifth Amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this annual report. The components of interest expense and related fees for the 2021 Credit Facility are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ Ended ​ ​ December 31, ​ 2023 2022 Interest expense – Lafayette Square ​ $ 3,655 ​ $ 2,498 Amortization of deferred financing costs – Lafayette Square ​ 552 ​ 497 Total interest expense and amortization of deferred financing costs ​ $ 4,207 ​ $ 2,995 ​ 84 Table of Contents On October 15, 2024, with an effective date of June 30, 2024, the Company and Lafayette Square entered into the Fifth Amendment to the Term Loan and Security Agreement (the “Fifth Amendment”) which among other things, (1) defers quarterly installment payments on the Term Loan and the Delayed Draw Loan for the periods from June 30, 2024 through December 31, 2025, (2) requires that the Company pay a commitment fee of 50 basis points or an amount of $ 0.1 million to Lafayette Square, (3) allows proceeds from future equity raises by the Company, if any, to cure potential financial covenant noncompliance, (4) provides for one-month and three-month interest periods, (5) replaces the calculation of the consolidated total net leverage ratio with a consolidated total leverage ratio for purposes of calculating the applicable margin and the financial covenant and (6) replaces the financial covenants under the 2021 Credit Facility (effective as of June 30, 2024) with the following: ​ As of Minimum TTM* EBITDA ($ in millions) Minimum Liquidity ($ in millions) Maximum Consolidated Total Leverage Ratio Minimum Fixed Charge Coverage Ratio June 30, 2024 n/a n/a n/a n/a September 30, 2024 $ 5.0 $ 1.5 n/a n/a December 31, 2024 $ 3.5 $ 1.5 n/a n/a March 31, 2025 $ 5.5 $ 2.0 n/a n/a June 30, 2025 $ 7.5 $ 2.0 n/a 1.50 to 1.00 September 30, 2025 n/a $ 2.0 4.25 to 1.0 1.50 to 1.00 December 31, 2025 n/a $ 2.0 4.00 to 1.0 1.50 to 1.00 March 31, 2026 n/a $ 2.0 3.75 to 1.0 1.50 to 1.00 June 30, 2026 n/a $ 2.0 3.50 to 1.0 1.50 to 1.00 September 30, 2026 n/a $ 2.0 3.25 to 1.0 1.50 to 1.00 ​ *TTM = Trailing Twelve Months ​ 2023 Revolving Line of Credit - East West Bank On July 7, 2023, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”), with East West Bank (“EWB”), as lender. The Credit Agreement provides for a revolving credit facility in the principal amount of up to $ 10.0 million, subject to a borrowing base determined based on eligible accounts, and an up to $ 5.0 million uncommitted incremental revolving facility. Loans under the Credit Agreement mature on July 7, 2025 (the “Maturity Date”), unless the Credit Agreement is otherwise terminated pursuant to the terms of the Credit Agreement. Borrowings under the Credit Agreement bear interest at a rate per annum equal to the one-month Term SOFR rate and as determined by EWB on the first day of the applicable interest period, plus 0.10 % (10 basis points), plus 3.00 % per annum (the “Loan Rate”); provided, that, in no event shall the Loan Rate be less than 0.50 % of the Loan Rate effective as of the date of the Credit Agreement nor more than the maximum rate of interest allowed under applicable law. Upon an event of default under the Credit Agreement, the outstanding principal amounts of any advances will accrue interest at a rate per annum equal to the Loan Rate plus five percent ( 5 %), but in no event in excess of the maximum rate of interest allowed under applicable law. At the Company’s option, the Company may at any time prepay the outstanding principal balance of the Credit Agreement in whole or in part, without fee, penalty or premium. All accrued but unpaid interest on outstanding advances under the Credit Agreement are payable in monthly installments on the last day of each monthly interest period until the Maturity Date when the then-outstanding principal balance of the advances and all accrued but unpaid interest thereon becomes due and payable. The obligations under the Credit Agreement are secured by all or substantially all of the borrowers’ assets. Prior to entering into the Third Amendment (as defined below), the Company was required to maintain compliance at all times with the following financial covenants on a consolidated basis: (i) a fixed charge coverage ratio of not less 85 Table of Contents than 1.25 to 1.0, beginning with the fiscal quarter ended on June 30, 2023 and at the end of each fiscal quarter thereafter; (ii) a total funded debt-to-EBITDA ratio of no more than 3.50 to 1.00 as of June 30, 2023 and the last day of each fiscal quarter through December 31, 2023, 3.25 to 1.00 as of March 31, 2024 and the last day of each fiscal quarter through March 31, 2025 and 3.00 to 1.00 as of June 30, 2025 and thereafter through maturity; and (iii) a liquidity covenant requiring the Company to maintain minimum liquid assets at all times (calculated in the manner provided for in the Credit Agreement), in one or more accounts held with EWB plus Revolving Credit Availability in the amount of $ 1,000,000 . Revolving Credit Availability is defined as an amount such that the ratio of the value of eligible accounts to the aggregate amount of all outstanding advances under the credit agreement at such time is not less than 2.0 to 1.0. The Company was in compliance with all the financial covenants under the Credit Agreement as of December 31, 2023. With the Third Amendment, the Company expects to be in compliance with all amended covenants for at least one year from the balance sheet date in this annual report. On October 15, 2024, with an effective date of June 30, 2024, the Company and EWB entered into the Third Amendment to the Credit Agreement (the “Third Amendment”) which, among other things, (1) provides that the Company will make prepayments of the outstanding principal balance of the Credit Agreement of $ 1.0 million upon execution of the Third Amendment, $ 1.0 million on or before January 15, 2025 and $ 2.0 million on or before April 15, 2025, (2) requires the Company to file a registration statement with the SEC to establish an equity line of credit offering on or before October 31, 2024 and to use commercially reasonable efforts to cause such registration statement to become effective, (3) requires the net proceeds of a potential equity line of credit to be applied to the outstanding principal balance under the Credit Agreement in an amount that would cause the ratio of the value of eligible accounts to the aggregate amount of revolving credit advances to be not less than 1.00 to 1.00, (4) requires the consent of EWB prior to the ability of the Company to make certain restricted payments, including cash dividends, (5) requires the Company to make additional prepayments in the amount by which the outstanding loans under the Credit Agreement exceed the borrowing base between the calendar months ending November 30, 2024 and April 15, 2025, and (6) replaces the financial covenants under the Credit Agreement, effective as of June 30, 2024, with the following: ​ As of Minimum TTM (1) EBITDA ($ in millions) Minimum Liquid Assets ($ in millions) Maximum Total Funded Debt to EBITDA Leverage Ratio Minimum Fixed Charge Coverage Ratio Revolving Credit Availability (as of each month end) June 30, 2024 n/a $ 1.0 n/a n/a n/a September 30, 2024 $ 5.0 $ 1.5 n/a n/a n/a December 31, 2024 $ 3.5 $ 1.5 n/a n/a 1.0 to 1.0 (2) March 31, 2025 $ 5.5 $ 2.0 n/a n/a 1.5 to 1.0 (3) June 30, 2025 $ 7.5 $ 2.0 n/a 1.25 to 1.00 2.0 to 1.0 (4) ​ (1) TTM = Trailing Twelve Months (2) Beginning November 30, 2024 (3) Beginning January 31, 2025 (4) Beginning April 15, 2025 ​ ​ The Credit Agreement contains customary representations and warranties and includes affirmative and negative covenants applicable to the borrowers and their respective subsidiaries. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental compliance, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The Credit Agreement also includes customary events of default, including, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, defaults under any of the loan documents, certain cross-defaults to other indebtedness, certain bankruptcy and insolvency events, invalidity of guarantees or grant of security interest, certain ERISA-related transactions and events, certain orders of forfeiture, change of control, certain undischarged 86 Table of Contents attachments, sequestrations, or similar proceedings, and certain undischarged or non-stayed judgments, in certain cases subject to certain thresholds and grace periods. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement of the Company or other borrowers. During the year ended December 31, 2023, the Company incurred $ 0.3 million of deferred financing costs associated with the Credit Agreement. As of December 31, 2023, there was $ 3.0 million outstanding under the Credit Agreement. As of the date of this report, there was $ 9.7 million outstanding under the Credit Agreement. The collateral securing the obligations under the 2021 Credit Facility and the Credit Agreement is subject to intercreditor agreements between Lafayette Square and EWB. 2020 Revolving Line of Credit - East West Bank On September 30, 2020, the Company entered into a credit agreement that provided for a revolving credit facility with EWB in the amount of $ 4.5 million with an initial availability of $ 1.0 million (the “2020 Revolving Credit Facility”). On December 17, 2021, the Company amended the 2020 Revolving Credit Facility, which increased the amount of the revolving loan to $ 5.0 million with an initial availability of $ 2.5 million, and in connection with the amendment, the Company incurred additional deferred financing fees of less than $ 0.1 million in January 2022. The loans under the 2020 Revolving Credit Facility bore interest at the LIBOR rate plus 3.5 % per annum, and as of March 31, 2022, the rate was 7.0 % with a 0.50 % unused fee. On July 26, 2022, the Company terminated the 2020 Revolving Credit Facility. As of December 31, 2023 and 2022, the Company did not have any outstanding borrowings under the 2020 Revolving Credit Facility. The components of interest expense and related fees for the Credit Agreement and 2020 Revolving Credit Facility is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Interest Expense: ​ ​ ​ ​ ​ ​ Credit Agreement ​ $ 102 ​ $ — 2020 Revolving Credit Facility ​ ​ — ​ ​ 23 Amortization of deferred financing costs: ​ ​ ​ ​ ​ ​ Credit Agreement ​ ​ 62 ​ ​ — 2020 Revolving Credit Facility ​ ​ — ​ ​ 101 Total interest expense and amortization of deferred financing costs ​ $ 164 ​ $ 124 ​ Silicon Valley Bank (“SVB”) Financing On January 9, 2023, the Company entered into the SVB Loan Agreement, by and among SVB, as lender, and DDH LLC, the Company, Huddled Masses, Colossus Media and Orange 142, as borrowers. The SVB Loan Agreement provided for a revolving credit facility (the “SVB Revolving Credit Facility”) in the original principal amount of $ 5 million, subject to a borrowing base determined based on eligible accounts, and up to an additional $ 2.5 million incremental revolving facility subject to the lender’s consent, which would increase the aggregate principal amount of the Credit Facility to $ 7.5 million. Loans under the SVB Revolving Credit Facility were to mature on September 30, 2024 unless the Credit Facility was otherwise terminated pursuant to the terms of the Loan Agreement. On March 10, 2023, the California Department of Financial Protection and Innovation closed SVB and appointed the Federal Deposit Insurance Corporation as receiver. As the Company had not yet drawn any amounts under the SVB Revolving Credit Facility, on March 13, 2023, the Company issued a notice of termination of the SVB Loan Agreement. The termination of the SVB Revolving Credit Facility became effective April 20, 2023. Prior to issuing the notice of termination, the Company received consent to terminate the SVB Revolving Credit Facility and a waiver of the terms relating to the SVB Revolving Credit Facility under its Term Loan and Security Agreement, dated as of December 3, 2021, with Lafayette Square Loan Servicing, LLC (“Lafayette Square”). The Company did not hold material cash deposits or securities at Silicon Valley Bank and did not experience any adverse impact to its liquidity or to its current and projected 87 Table of Contents business operations, financial condition or results of operations as a result of the SVB closure. During the year ended December 31, 2023, the Company incurred $ 0.3 million of deferred financing costs. After the Company issued the notice of termination, total deferred financing costs of $ 0.3 million were expensed to loss on early termination of line of credit during the year ended December 31, 2023. U.S. Small Business Administration Loans Economic Injury Disaster Loan In 2020, the Company applied and was approved for a loan pursuant to the Economic Injury Disaster Loan (“EIDL”), administered by the U.S. Small Business Administration (“SBA”). The Company received the loan proceeds of $ 150,000 on June 15, 2020. The loan bears interest at a rate of 3.75 % and matures on June 15, 2050. Installment payments, including principal and interest, of less than $ 1,000 began monthly on December 15, 2022. Each payment will first be applied to pay accrued interest, then the remaining balance will be used to reduce principal. The loan is secured by substantially all assets of DDH LLC. Accrued and unpaid interest expense as of December 31, 2023 and 2022 was less than $ 0.1 million, and is included in accrued expenses on the consolidated balance sheets. Paycheck Protection Program In 2020, the Company applied and was approved for a loan pursuant to the Paycheck Protection Program (“PPP”), administered by the SBA (the “PPP-1 Loan”). In February 2021, the $ 10,000 of the PPP-1 loan was forgiven. The PPP was authorized in the Coronavirus Aid, Relief, and Economic Security Act and was designed to provide a direct financial incentive for qualifying business to keep their workforce employees. The SBA made PPP loans available to qualifying businesses in amounts up to 2.5 times their average monthly payroll expenses, and loans were forgivable after a “covered period” (eight or twenty-four weeks) as long as the borrower maintained its payroll and utilities. The forgiveness amount would be reduced if the borrower terminated employees or reduced salaries and wages more than 25% during the covered period. Any unforgiven portion was payable over two years if issued before, or five years if issued after, June 5, 2020 at an interest rate of 1.0 % with payments deferred until the SBA remits the borrower’s loan forgiveness amount to the lender, or if the borrower did not apply for forgiveness, then six months after the end of the covered period. In March 2021, DDH LLC applied for and received a PPP loan (the “PPP-2 Loan”) for a principal amount of $ 0.3 million and there were no collateral or guarantee requirements. On April 11, 2022, the balance on the PPP-2 Loan was forgiven. Overall As of December 31, 2023, future minimum payments related to long-term debt are as follows (in thousands): ​ ​ ​ ​ 2024 $ 1,478 2025 4,460 2026 25,660 2027 3 2028 3 Thereafter ​ 140 Total ​ 31,744 Less current portion ​ ( 1,478 ) Less deferred financing costs ​ ( 1,688 ) Long-term debt, net ​ $ 28,578 ​ Note 4 — Stockholders’ (Deficit) Equity and Stock-Based Compensation Stockholders’ Equity – Initial Public Offering Following the completion of the Organizational Transactions, DDH LLC’s limited liability company agreement was amended and restated to, among other things, appoint the Company as the sole managing member of DDH LLC and 88 Table of Contents effectuate a recapitalization of all outstanding preferred units and common units into (i) economic nonvoting units of DDH LLC held by the Company and, through their indirect ownership of DDM, the Company’s Chairman and Chief Executive Officer and President, and (ii) noneconomic voting units of DDH LLC, 100 % of which are held by the Company. In August 2022 and December 2023, DDM tendered 100,000 and 410,000 , respectively, of its limited liability company units to the Company in exchange for newly issued shares of Class A Common Stock of the Company on a one -for-one basis. In connection with these exchanges, an equivalent number of the holder’s shares of Class B Common Stock were cancelled. As of December 31, 2023, DDM held 10,868,000 shares of Class B Common Stock. The Company is authorized to issue 160,000,000 shares of Class A Common Stock, par value $ 0.001 per share, 20,000,000 shares of Class B Common Stock, par value $ 0.001 per share, and 10,000,000 shares of preferred stock, par value $ 0.001 per share. On February 15, 2022, the Company completed its initial public offering of 2,800,000 units (“Units”), each consisting of (i) one share of its Class A Common Stock and (ii) one warrant entitling the holder to purchase one share of its Class A Common Stock at an exercise price of $ 5.50 per share. The warrants became immediately exercisable upon issuance and were exercisable for a period of five years after the issuance date. The shares of Class A Common Stock and warrants were immediately transferable separately upon issuance. At December 31, 2023, none of these warrants were outstanding. The underwriters in our initial public offering were granted a 45 -day option to purchase up to an additional 420,000 shares and/or warrants, or any combination thereof, to cover over-allotments, which they initially exercised, in part, electing to purchase warrants to purchase an additional 420,000 shares of Class A Common Stock. As of December 31, 2023, none of these warrants were outstanding. In connection with the Company’s initial public offering, the Company issued to the underwriters of the offering a unit purchase option to purchase (i) an additional 140,000 Units at a per Unit exercise price of $ 6.60 , which was equal to 120 % of the public offering price per Unit sold in the initial public offering, and (ii) warrants to purchase 21,000 shares of Class A Common Stock at a per warrant exercise price of $ 0.012 , which was equal to 120 % of the public offering price per warrant sold in the offering. A group of underwriters exercised 70,000 Units and 10,500 warrants in November 2023. At December 31, 2023, 70,000 Units and 10,500 warrants were outstanding. The Units were sold at a price of $ 5.50 per Unit, and the net proceeds from the offering were $ 10.2 million after deducting underwriting discounts and commissions and offering expenses payable by the Company. DDH LLC used the proceeds, together with pre-existing cash and cash equivalents, to purchase all of the remaining 5,637 common units and 7,046 Class B Preferred Units held by USDM Holdings, Inc., a former co-owner of DDH LLC, for an aggregate purchase price of approximately $ 14.2 million of which $ 10.3 million was paid on the closing date of the initial public offering. On July 28, 2022, DDH LLC entered into the Redemption Agreement Amendment with USDM Holdings, Inc. that amended the previously disclosed Redemption Agreement by and between DDH LLC and USDM Holdings, Inc. dated as of November 14, 2021 (the “Original Redemption Agreement”), as amended by the Amendment to Redemption Agreement dated as of February 15, 2022. The Redemption Agreement Amendment, among other things, amended the remainder of the principal and interest for the Common Units Redemption Price to be $ 4.0 million which was paid in full on July 28, 2022. The warrants had a fair value of $ 0 that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.94 % based on the applicable U.S. Treasury bill rate, (2) expected life of 5 years, (3) expected volatility of approximately 66 % based on the trading history of similar companies, and (4) zero expected dividends. On August 29, 2023, the Company filed a Tender Offer Statement on Schedule TO pursuant to which the Company offered to purchase all of its outstanding warrants for $ 1.20 per warrant in cash. The Tender Offer expired at one minute after 11:59 PM, Eastern Time on September 28, 2023. The Company accepted all validly tendered warrants for purchase and settlement on October 2, 2023. As a result of the Tender Offer, a total of 2,213,652 warrants were tendered and not validly withdrawn prior to the expiration of the tender offer for a total purchase price of approximately $ 2.7 million. On October 23, 2023, the Company distributed a notice of redemption to the registered holders of the remaining outstanding warrants announcing the redemption of those warrants for $ 0.35 per warrant. The redemption closed on October 30, 2023, and all remaining 1,004,148 warrants were purchased for an aggregate price of approximately $ 0.4 million. 89 Table of Contents The following table summarizes the public warrant activity during the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Warrants ​ ​ ​ ​ ​ ​ Weighted Average ​ Aggregate ​ ​ ​ ​ Weighted Average ​ Contractual Life ​ Intrinsic Value ​ Warrants Exercise Price (in years) (in thousands) Outstanding at January 1, 2022 ​ — ​ $ — ​ — ​ $ — Granted ​ 3,220,000 ​ $ 5.50 ​ 4.38 ​ $ — Exercised ​ — ​ $ — ​ — ​ $ — Redeemed ​ — ​ $ — ​ — ​ $ — Outstanding at December 31, 2022 3,220,000 ​ $ 5.50 4.13 ​ $ — Granted — ​ $ — — ​ $ — Exercised ( 2,200 ) ​ $ 5.50 — ​ $ — Redeemed ( 3,217,800 ) ​ $ 5.50 — ​ $ — Outstanding at December 31, 2023 — ​ $ — — ​ $ — Exercisable at December 31, 2023 — ​ ​ ​ ​ ​ ​ ​ ​ ​ Noncontrolling Interest Direct Digital Holdings, Inc. is the sole managing member of DDH LLC, and consolidates the financial results of DDH LLC. Therefore, Direct Digital Holdings, Inc. reports a noncontrolling interest based on the common units of DDH LLC held by DDM. While Direct Digital Holdings, Inc. retains its controlling interest in DDH LLC, changes in its ownership interest in DDH LLC are accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Units by DDM will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital when DDH LLC has positive or negative net assets, respectively. Stock-Based Compensation Plans In connection with the initial public offering, the Company adopted the 2022 Omnibus Incentive Plan (“2022 Omnibus Plan”) to facilitate the grant of equity awards to the Company’s employees, consultants and non-employee directors. The Company’s board of directors reserved 1,500,000 shares of Class A Common Stock for issuance in equity awards under the 2022 Omnibus Plan. Information on activity for both the stock options and RSUs is detailed below. As of December 31, 2023, there were 488,646 shares available for grant under the 2022 Omnibus Plan. During the years ended December 31, 2023 and 2022, the Company recognized $ 2.2 million and $ 0.1 million, respectively, of total stock-based compensation expense in the consolidated statements of operations in compensation, tax and benefits. The 2023 stock-based compensation expense includes $ 1.4 million of bonus accrued for 2023 performance by certain Company executives which was paid out via a grant of Company stock in March 2024. ​ 90 Table of Contents Stock Options Options to purchase shares of common stock vest annually on the grant date anniversary over a period of three years and expire 10 years following the date of grant. The following table summarizes the stock option activity under the 2022 Omnibus Plan during the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock Options ​ ​ ​ ​ Weighted Average Aggregate ​ ​ ​ ​ Weighted Average ​ Contractual Life ​ Intrinsic Value ​ ​ Shares ​ Exercise Price ​ (in years) ​ (in thousands) Outstanding at January 1, 2022 ​ — ​ $ — ​ — ​ $ — Granted ​ 278,850 ​ $ 1.68 ​ — ​ $ — Exercised ​ — ​ $ — ​ — ​ $ — Forfeited ​ ( 24,850 ) ​ $ 1.62 ​ — ​ $ — Outstanding at December 31, 2022 254,000 ​ $ 1.69 9.40 $ 193 Granted 153,665 ​ $ 3.78 9.24 ​ $ 24 Exercised ( 7,883 ) ​ $ 1.62 — ​ $ 55 Forfeited ( 28,666 ) ​ $ 2.26 — ​ $ 41 Outstanding at December 31, 2023 371,116 ​ $ 2.51 8.77 ​ $ 4,591 Vested and exercisable at December 31, 2023 70,147 ​ $ 1.70 8.40 ​ $ 924 ​ The weighted average fair value of options granted during the years ended December 31, 2023 and 2022 was $ 2.44 and $ 1.01 , respectively. As of December 31, 2023, there was unrecognized stock-based compensation of $ 0.4 million related to 300,969 of unvested stock options which will be recognized on a straight-line basis over a weighted-average vesting period of 1.86 years. Restricted Stock Units RSUs generally vest annually on the grant date anniversary over a period of three years . A summary of RSU activity during the years ended December 31, 2023 and 2022 and related information is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted Stock Units ​ ​ ​ ​ Weighted Average ​ ​ ​ ​ Grant Date Fair Value ​ Number of Shares ​ per Share Unvested - January 1, 2022 ​ ​ ​ ​ ​ Granted ​ 377,614 ​ $ 1.67 Vested ​ — ​ ​ — Forfeited ​ ( 24,850 ) ​ $ 1.62 Unvested - December 31, 2022 ​ 352,764 ​ ​ 1.67 Granted 329,249 ​ $ 3.70 Vested ​ ( 111,084 ) ​ $ 1.67 Forfeited ( 28,533 ) ​ $ 2.26 Unvested - December 31, 2023 542,396 ​ $ 2.87 ​ The majority of vested RSUs were net share settled such that the Company withheld shares with a value equivalent to the employees’ obligation for the applicable income and other employment taxes. The total shares withheld were 20,992 and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. As of December 31, 2023, there was unrecognized stock-based compensation of $ 1.0 million related to unvested RSUs which will be recognized on a straight-line basis over a weighted average period of 1.66 years. 91 Table of Contents Note 5 — Tax Receivable Agreement and Income Taxes Tax Receivable Agreement The Company’s TRA with DDH LLC and DDM (together, the “TRA Holders”) provides for payment by the Company to the TRA Holders of 85 % of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. The Company retains the benefit of the remaining 15 % of these net cash savings, and as a result, recorded $ 0.8 million during 2022 as additional paid-in capital in connection with the Organizational Transactions. The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting impact. The blended tax rate consists of the U.S. federal income tax rate and assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Any taxable income or loss generated by the Company will be allocated to TRA Holders in accordance with the TRA, and distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations will be made. Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of DDH, LLC when LLC interests are redeemed or exchanged by the members of DDH, LLC. The Company plans to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC interest occurs. During the years ended December 31, 2023 and 2022, members of DDM exchanged 410,000 and 100,000 Class B shares into Class A shares, respectively. The Company has recorded a liability related to the tax receivable agreement of $ 5.2 million and $ 4.3 million as of December 31, 2023 and 2022, respectively. The Company has recorded a deferred tax asset primarily from the outside basis difference in the partnership interest of $ 6.2 million and $ 5.2 million as of December 31, 2023 and 2022, respectively. Payments of less than $ 0.1 million were made during the years ended December 31, 2023 and 2022. The payments under the TRA will not be conditional on holder of rights under the TRA having a continued ownership interest in either DDH LLC or the Company. The Company may elect to defer payments due under the TRA if the Company does not have available cash to satisfy its payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date. The Company accounts for any amounts payable under the TRA in accordance with ASC Topic 450, Contingencies , and recognizes subsequent period changes to the measurement of the liability from the TRA in the statement of operations as a component of income before taxes. For the year ended December 31, 2023, $ 0.3 million was recorded as income in other expense, net for such change. The term of the TRA commenced upon completion of the initial public offering and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless the Company exercises its right to terminate the TRA. If the Company elects to terminate the TRA early (or it is terminated early due to changes in control), the obligations under the TRA would accelerate and the Company would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by the Company under the TRA. Income Taxes Through the Organizational Transactions completed in February 2022, the Company formed an Up-C structure which allows DDM to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership for U.S. federal income tax purposes. Under the Up-C structure, the Company is subject to corporation income tax on the variable ownership changes that occurred in the first and third quarters of 2022, and in the fourth quarter of 2023. As a result, the Company recorded a provision for federal and state deferred income tax of $ 0.6 million primarily attributed to valuation allowances of $ 0.5 million recorded against deferred taxes associated with loss carryforwards and interest expense for which the realization of such deferred taxes is uncertain. Prior to 2022, the Company was treated as a partnership, and therefore no income tax expense was recognized. For the year ended December 31, 2022, income taxes 92 Table of Contents on the financial statements include income taxes of $ 0.2 million as shown in the following table as well as $ 0.1 million of non-income related franchise taxes. The components of income tax expense are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ — ​ $ 107 State ​ ​ — ​ ​ 34 Total current: ​ ​ — ​ ​ 141 Deferred: ​ ​ ​ ​ ​ ​ Federal ​ $ 205 ​ $ 85 State ​ 363 ​ 20 Total deferred: ​ ​ 568 ​ ​ 105 Total income tax expense ​ $ 568 ​ $ 246 ​ A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 Federal income tax expense at statutory rate ​ 21.0 % 21.0 % State income tax expense ​ 0.6 % 1.1 % Partnership income not taxed ​ ( 17.0 ) % ( 16.6 ) % Valuation allowance ​ ( 7.3 ) % — % Deferred tax remeasurement ​ ( 6.5 ) % ​ ​ Other ​ 0.1 % — % Effective income tax rate ​ ( 9.1 ) % 5.5 % ​ Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. The components of deferred tax assets are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Deferred tax assets related to: ​ ​ ​ ​ ​ ​ Partnership basis difference, net of valuation allowance ​ $ 5,852 ​ $ 5,165 Net operating loss carryforwards ​ ​ 280 ​ ​ — Deferred tax assets, net ​ $ 6,132 ​ $ 5,165 ​ As of December 31, 2023, the Company had federal net operating loss carryforwards of $ 1.1 million that can be carried forward indefinitely. The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. In the normal course of business, the Company can be examined by various tax authorities, including the Internal Revenue Service in the United States . There are currently no federal or state audits in process . The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. Federal and various states returns for the years ended December 2022 and 2021 remain open as of December 31, 2023. The Company evaluates tax positions taken or expected to be taken in the course of preparing an entity’s tax returns to determine whether it is “more-likely-than-not” that each tax position will be sustained by the applicable tax authority. As of December 31, 2023 and 2022, the Company had no uncertain tax positions. Accordingly, the Company has no t recognized any penalty, interest or tax impact related to uncertain tax positions. 93 Table of Contents Note 6 — Related Party Transactions Related Party Transactions Member Payable As of December 31, 2023 and 2022, the Company’s balances with members related to the timing of distributions to holders of LLC Units were a receivable of $ 1.7 million and payable of $ 1.4 million, respectively, which are included as a related party receivable and payable, respectively, on the consolidated balance sheets. Up-C Structure In February 2022, the Company completed an initial public offering of its securities, and through the Organizational Transactions, formed an Up-C structure, which is often used by partnerships and limited liability companies and allows DDM, a Delaware limited liability company indirectly owned by Mark Walker (“Walker”) and Keith Smith (“Smith”), to retain its equity ownership in DDH LLC and to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for U.S. federal income tax purposes. DDM holds economic nonvoting LLC Units in DDH LLC and holds noneconomic voting equity interests in the form of the Class B Common Stock in Direct Digital Holdings (See Note 4 – Stockholders’ Equity and Stock-Based Compensation). One of the tax benefits to DDM associated with this structure is that future taxable income of DDH LLC that is allocated to DDM will be taxed on a pass-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, DDM may, from time to time, redeem or exchange its LLC Units for shares of the Company’s Class A Common Stock on a one -for-one basis. The Up-C structure also provides DDM with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. If the Company ever generates sufficient taxable income to utilize the tax benefits, DDH expects to benefit from the Up-C structure because, in general, the Company expects cash tax savings in amounts equal to 15 % of certain tax benefits arising from such redemptions or exchanges of DDM's LLC Units for Class A Common Stock or cash and certain other tax benefits covered by the TRA. (See Note 5 - Tax Receivable Agreement and Income Taxes). The aggregate balance of tax receivable liabilities as of December 31, 2023 and 2022, is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Liability related to tax receivable agreement: ​ ​ ​ ​ ​ ​ Short term ​ $ 41 ​ $ 183 Long term ​ ​ 5,201 ​ ​ 4,150 Total liability related to tax receivable agreement ​ $ 5,242 ​ $ 4,333 ​ Board Services and Consulting Agreement On September 30, 2020, the Company entered into board services and consulting agreements with Walker, Smith and Leah Woolford (“Woolford”). Walker, Smith and Woolford were then all members of DDH LLC. Walker now serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. Smith now serves as a director on the Board of Directors and President of the Company. Woolford previously served as a Manager on the Board of Managers of DDH LLC and Senior Advisor of DDH LLC. In connection with the Organizational Transactions, the consulting agreements were canceled, and, for the year end December 31, 2023 , no fees were paid to Walker, Smith and Woolford. For the year end December 31, 2022 , total fees paid to Walker, Smith and Woolford were $ 0.1 million, $ 0.1 million, and less than $ 0.1 million, respectively. ​ 94 Table of Contents Note 7 — Segment Information Revenue by business segment is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Sell-side advertising ​ $ 122,434 ​ $ 60,011 Buy-side advertising ​ ​ 34,676 ​ ​ 29,349 Total revenues ​ $ 157,110 ​ $ 89,360 ​ Operating (loss) income by business segment reconciled to (loss) income before income taxes is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Sell-side advertising ​ $ 4,874 ​ $ 8,318 Buy-side advertising ​ ​ 7,792 ​ ​ 6,992 Corporate office expenses ​ ( 14,851 ) ​ ( 7,331 ) (Loss) income from operations ​ ​ ( 2,185 ) ​ ​ 7,979 Corporate other expense ​ ​ ( 4,091 ) ​ ​ ( 3,486 ) (Loss) income before income taxes ​ $ ( 6,276 ) ​ $ 4,493 ​ Total assets by business segment are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Sell-side advertising ​ $ 34,354 ​ $ 25,512 Buy-side advertising ​ ​ 22,539 ​ ​ 25,686 Corporate office ​ 13,779 ​ 6,928 Total assets ​ $ 70,672 ​ $ 58,126 ​ ​ Note 8 — Net (Loss) Income Per Share The Company has two classes of common stock, Class A and Class B. Shares of the Company’s Class B Common Stock do not share in the earnings or losses attributable to Direct Digital Holdings, Inc. and are therefore not participating securities. The Company uses the two-class method to calculate basic and diluted earnings per share as a result of 95 Table of Contents outstanding participating securities in the form of warrants. The following table sets forth the computation of the Company’s basic and diluted (loss) income per share (in thousands, except per share amounts). ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2023 2022 Net (loss) income ​ $ ( 2,194 ) ​ $ 205 Less: net loss prior to Organizational Transactions ​ ​ — ​ ​ ( 464 ) Net (loss) income attributable to Class A shareholders and participating securities ​ ​ ( 2,194 ) ​ ​ 669 Less: net income allocated to participating securities ​ ​ — ​ ​ 353 Net (loss) income allocated to Class A shareholders ​ $ ( 2,194 ) ​ $ 316 ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding - basic ​ 2,988 ​ ​ 2,848 Options to purchase common stock ​ — ​ — Unvested restricted stock units ​ ​ — ​ ​ 43 Weighted average common shares outstanding - diluted ​ 2,988 ​ 2,891 Net (loss) income per share, basic ​ $ ( 0.73 ) ​ $ 0.11 Net (loss) income per share, diluted ​ $ ( 0.73 ) ​ $ 0.11 ​ The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net (loss) income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2023 2022 Class B Common Stock ​ ​ 11,249 ​ ​ 11,330 Restricted stock units ​ ​ 511 ​ ​ 189 Options to purchase common stock ​ 347 ​ — Total excludable from net (loss) income per share attributable to common stockholders - diluted ​ 12,107 ​ 11,519 ​ ​ Note 9 — Commitments and Contingencies Litigation We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. As of the date hereof, except as set forth below, we are not a party to any material legal or administrative proceedings nor are there any proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. On May 23, 2024, an alleged stockholder, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between April 2023 and March 2024, filed a putative class action against the Company, certain of our officers and directors, and other defendants in the U.S. District Court for the Southern District of Texas, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. On July 9, 2024, another alleged stockholder filed a similar securities class action against the Company, certain of our officers and directors, also in the Southern District of Texas. The two actions have been consolidated. Each of these complaints seeks unspecified damages, plus costs, fees, and attorneys’ fees. The Company cannot make any predictions about the final outcome of this matter or the timing thereof but believes that plaintiffs’ claims lack merit and intends to vigorously defend these lawsuits. 96 Table of Contents On May 10, 2024, the Company was the subject of a defamatory article / blog post. In connection with this post, one of the Company’s sell-side customers paused its connection to the Company while the allegations were investigated. This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024. The Company is actively working with its partners to achieve prior volume levels. On May 14, 2024, the Company filed a lawsuit against the author of the defamatory article and is vigorously pursuing its rights. The Company cannot make any predictions about the final outcome of this litigation matter or the timing thereof. Other Expense (within Operating Expenses) Typically, short payments received from our customers are charged back to our publishers, in accordance with our contracts with the publishers. In January 2024, we received notice from one of our sell-side customers that it would be short paying the Company’s invoices. The Company has requested, but has not yet received, an explanation from the customer for the short payment, and therefore the Company disputed it. Because this information has not been received, the Company paid $ 8.8 million to a few publishers related to these charges. As a result, for the year ended December 31, 2023, the Company has not recognized revenue related to the short payments and recognized $ 8.8 million in other expense related to the payments made to the publishers. Although the Company is attempting to recover these amounts, recovery is neither estimable or probable and there can be no assurance that the Company will recover any amounts associated with this matter. We do not expect these amounts to recur in any material fashion, although there is no assurance that customers will not take such action in the future. Operating Leases During the years ended December 31, 2023 and 2022, the Company incurred fixed rent expense associated with operating leases for real estate of $ 0.3 million and $ 0.3 million, respectively. The Company did not have any finance leases, short-term leases nor variable leases over this time period. During the years ended December 31, 2023 and 2022, the Company had the following cash and non-cash activities associated with leases (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Cash paid for amounts included in the measurement of lease liabilities: ​ 2023 2022 Operating cash outflow for operating leases ​ $ 154 ​ $ 152 Non-cash changes to the operating lease ROU assets and operating lease liabilities: ​ ​ ​ ​ ​ ​ Additions and modifications to ROU asset obtained from new operating liabilities ​ $ 153 ​ $ — ​ The weighted-average remaining lease term and discount rate for the Company’s operating leases is 5.5 years and 8.3 %, respectively, as of December 31, 2023. The weighted-average remaining lease term and discount rate for the Company’s operating leases is 6.6 years and 8.3 %, respectively, as of December 31, 2022. The future payments due under operating leases as of December 31, 2023 is as follows (in thousands): ​ ​ ​ ​ 2024 $ 193 2025 ​ 239 2026 ​ 160 2027 ​ 163 2028 ​ 167 Thereafter ​ 200 Total undiscounted lease payments ​ 1,122 Less effects of discounting ​ ( 223 ) Less current lease liability ​ ​ ( 126 ) Total operating lease liability, net of current portion ​ $ 773 ​ ​ 97 Table of Contents Note 10 — Property, Equipment and Software, net Property, equipment and software, net consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Useful Life (Years) 2023 2022 Furniture and fixtures ​ 5 ​ $ 128 ​ $ 119 Computer equipment ​ 3 ​ ​ 20 ​ ​ 17 Leasehold improvements ​ 15 ​ ​ 36 ​ ​ — Capitalized software ​ 3 ​ ​ 702 ​ ​ 571 Property, equipment and software, gross ​ ​ ​ ​ 886 ​ ​ 707 Less: accumulated depreciation and amortization ​ ​ ​ ​ ( 287 ) ​ ​ ( 34 ) Total property, equipment and software, net ​ ​ ​ $ 599 ​ $ 673 ​ The Company acquired the license to its proprietary Colossus SSP platform in November 2022 from its third-party developer. The Company moved headquarters in 2022 and capitalized furniture and fixtures, computer equipment and leasehold improvements related to the move. The following table summarizes depreciation and amortization expense related to property, equipment and software by line item for the years ended December 31, 2023 and 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2023 2022 Cost of revenues ​ $ 218 ​ $ 28 General and administrative ​ ​ 35 ​ ​ 6 Total depreciation and amortization ​ $ 253 ​ $ 34 ​ Note 11 — Intangible Assets In September 2020, the Company acquired Orange 142 for a purchase price of $ 26.2 million which was allocated to the fair value of the net tangible assets acquired, including goodwill and intangible assets. The purchase consideration exceeded the fair value of the net tangible assets, resulting in goodwill of $ 4.1 million and intangible assets of $ 18.0 million. The Company records amortization expense on a straight-line basis over the life of the identifiable intangible assets. For the years ended December 30, 2023 and 2022, amortization expense was $ 2.0 million and $ 2.0 million, respectively. As of December 31, 2023 and 2022, intangible assets net of accumulated amortization was $ 11.7 million and $ 13.6 million, respectively. 98 Table of Contents As of December 31, 2023 and 2022, intangible assets consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Weighted-Average ​ Original ​ Accumulated ​ Net ​ Remaining Life (Years) ​ Amount Amortization Amount Customer lists ​ 6.8 ​ $ 13,028 ​ $ ( 4,234 ) ​ $ 8,794 Trademarks and tradenames ​ 6.8 ​ ​ 3,501 ​ ​ ( 1,138 ) ​ ​ 2,363 Non-compete agreements 1.8 ​ ​ 1,505 ​ ​ ( 978 ) ​ ​ 527 Total intangible assets, net ​ ​ ​ $ 18,034 ​ $ ( 6,350 ) ​ $ 11,684 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Weighted-Average ​ Original ​ Accumulated ​ Net ​ ​ Remaining Life (Years) ​ Amount Amortization Amount Customer lists ​ 7.8 ​ $ 13,028 ​ $ ( 2,931 ) ​ $ 10,097 Trademarks and tradenames ​ 7.8 ​ ​ 3,501 ​ ​ ( 788 ) ​ ​ 2,713 Non-compete agreements ​ 2.8 ​ ​ 1,505 ​ ​ ( 677 ) ​ ​ 828 Total intangible assets, net ​ ​ ​ $ 18,034 ​ $ ( 4,396 ) ​ $ 13,638 ​ As of December 31, 2023, future amortization of intangible assets is as follows (in thousands): ​ December 31, 2023 2024 $ 1,953 2025 ​ 1,878 2026 ​ 1,653 2027 ​ 1,653 2028 ​ 1,653 Thereafter ​ 2,894 Total future amortization expense ​ $ 11,684 ​ Note 12 — Mandatorily Redeemable Preferred Units In connection with the Orange 142 acquisition, DDH LLC issued 7,076 non-voting Class B Preferred Units at a purchase price of $ 7.1 million, and a fair value of $ 6.5 million. Class B Preferred Units were mandatorily redeemable for $ 7.1 million on September 30, 2024, with 7 % preferred annual returns paid on a quarterly basis. Due to the mandatory redemption feature, the Class B Preferred Units were classified as a liability rather than as a component of equity, with the preferred annual returns being accrued and recorded as interest expense. In February 2022, DDH LLC redeemed the Class B Preferred Units and recognized a loss on the redemption of $ 0.6 million in connection with the write-off of the fair value associated with the units. The Company recorded interest expense relating to the Class B Preferred Units of less than $ 0.1 million for the year ended December 31, 2022. Note 13 — Restatement (Unaudited) During the preparation of the consolidated financial statements as of and for the year ended December 31, 2023, the Company identified prior period accounting errors in the Company’s previously reported unaudited interim consolidated financial statements beginning March 31, 2022 resulting from the incorrect (1) accounting for, and presentation of, NCI, (2) recognition of an organizational transaction in connection with the Company’s initial public offering, (3) presentation of earnings per share considering the effect of certain features of the Company’s warrants and the impact of correcting the accounting for, and presentation of, NCI, and (4) timing of the recording of the 2023 redemption of warrants. The Company’s management and the audit committee of the Company’s Board of Directors determined that these errors in the unaudited interim consolidated financial statements for the quarterly periods ended March 31, 2023, June 30, 2023 and September 30, 2023 required a restatement of these prior period financial statements. 99 Table of Contents In addition, certain prior year amounts have been revised in the consolidated statement of cash flows. These are shown in the following statements of cash flows as “Immaterial Revisions.” The following tables present the restated quarterly unaudited interim financial statements as of March 31, 2023, June 30, 2023 and September 30, 2023, for the three-month period ended March 31, 2023, the three- and six-month periods ended June 30, 2023 and the three- and nine-month periods ended September 30, 2023. ​ 100 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ ​ As Previously ​ Restatement ​ ​ ​ (in thousands, except per share and share amounts) ​ Reported Adjustments As Restated ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 6,719 ​ $ — $ 6,719 Accounts receivable, net ​ 19,050 ​ — ​ 19,050 Prepaid expenses and other current assets ​ 1,038 ​ — ​ 1,038 Total current assets ​ 26,807 ​ — ​ 26,807 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment, and software, net ​ 665 ​ — ​ 665 Goodwill ​ 6,520 ​ — ​ 6,520 Intangible assets, net ​ 13,149 ​ — ​ 13,149 Deferred tax asset, net ​ 5,240 ​ — ​ 5,240 Operating lease right-of-use assets ​ 757 ​ — ​ 757 Other long-term assets ​ 46 ​ — ​ 46 Total assets ​ $ 53,184 ​ $ — ​ $ 53,184 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ CURRENT LIABILITIES: ​ ​ ​ Accounts payable ​ $ 13,787 ​ $ — ​ $ 13,787 Accrued liabilities ​ 4,674 ​ ( 1,000 ) ​ 3,674 Current portion of liability related to tax receivable agreement ​ 41 ​ — ​ 41 Current maturities of long-term debt ​ 819 ​ — ​ 819 Deferred revenues ​ 949 ​ — ​ 949 Operating lease liabilities, current portion ​ 70 ​ — ​ 70 Income taxes payable ​ 183 ​ — ​ 183 Related party payables ​ 1,448 ​ — ​ 1,448 Total current liabilities ​ 21,971 ​ ( 1,000 ) ​ 20,971 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt, net of current portion and deferred financing cost ​ 22,707 ​ — ​ 22,707 Economic Injury Disaster Loan ​ 150 ​ — ​ 150 Liability related to tax receivable agreement, net of current portion ​ 4,245 ​ — ​ 4,245 Operating lease liabilities, net of current portion ​ 744 ​ — ​ 744 Total liabilities ​ 49,817 ​ ( 1,000 ) ​ 48,817 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ EQUITY ​ ​ ​ Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 2,902,200 shares issued and outstanding as of March 31, 2023 ​ 3 ​ — ​ ​ 3 Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of March 31, 2023 ​ 11 ​ — ​ ​ 11 Additional paid-in capital ​ 8,330 ​ ( 5,613 ) ​ ​ 2,717 Accumulated deficit ​ ( 4,977 ) ​ 4,419 ​ ​ ( 558 ) Noncontrolling interest ​ — ​ 2,194 ​ ​ 2,194 Total stockholders’ equity ​ 3,367 ​ 1,000 ​ 4,367 Total liabilities and stockholders’ equity ​ $ 53,184 ​ $ — ​ $ 53,184 ​ 101 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2023 ​ ​ As Previously Restatement ​ ​ (in thousands, except per share and share amounts) ​ Reported ​ Adjustments ​ As Restated ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 5,668 ​ $ — $ 5,668 Accounts receivable, net ​ 29,629 ​ — ​ 29,629 Prepaid expenses and other current assets ​ 1,052 ​ — ​ 1,052 Total current assets ​ 36,349 ​ — ​ 36,349 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment, and software, net ​ 689 ​ — ​ 689 Goodwill ​ 6,520 ​ — ​ 6,520 Intangible assets, net ​ 12,661 ​ — ​ 12,661 Deferred tax asset, net ​ 5,171 ​ — ​ 5,171 Operating lease right-of-use assets ​ 714 ​ — ​ 714 Other long-term assets ​ 47 ​ — ​ 47 Total assets ​ $ 62,151 ​ $ — ​ $ 62,151 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ CURRENT LIABILITIES ​ ​ ​ Accounts payable ​ $ 23,358 ​ $ — ​ $ 23,358 Accrued liabilities ​ 3,879 ​ ( 1,000 ) ​ 2,879 Liability related to tax receivable agreement, current portion ​ 40 ​ — ​ 40 Current maturities of long-term debt ​ 983 ​ — ​ 983 Deferred revenues ​ 951 ​ — ​ 951 Operating lease liabilities, current portion ​ 48 ​ — ​ 48 Income taxes payable ​ 22 ​ — ​ 22 Related party payables ​ 1,197 ​ — ​ 1,197 Total current liabilities ​ 30,478 ​ ( 1,000 ) ​ 29,478 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt, net of current portion and deferred financing cost ​ 22,515 ​ — ​ 22,515 Economic Injury Disaster Loan ​ 150 ​ — ​ 150 Liability related to tax receivable agreement, net of current portion ​ 4,246 ​ — ​ 4,246 Operating lease liabilities, net of current portion ​ 742 ​ — ​ 742 Total liabilities ​ 58,131 ​ ( 1,000 ) ​ 57,131 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ EQUITY ​ ​ ​ Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 2,988,916 shares issued and outstanding as of June 30, 2023 ​ 3 ​ — ​ ​ 3 Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of June 30, 2023 ​ 11 ​ — ​ ​ 11 Additional paid-in capital ​ 8,540 ​ ( 5,613 ) ​ ​ 2,927 Accumulated deficit ​ ( 4,534 ) ​ 4,168 ​ ​ ( 366 ) Noncontrolling interest ​ — ​ 2,445 ​ ​ 2,445 Total stockholders’ equity ​ 4,020 ​ 1,000 ​ 5,020 Total liabilities and stockholders’ equity ​ $ 62,151 ​ $ — ​ $ 62,151 ​ 102 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ ​ As Previously Restatement ​ ​ (in thousands, except per share and share amounts) ​ Reported ​ Adjustments ​ As Restated ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 5,482 ​ $ — ​ $ 5,482 Accounts receivable, net ​ 54,638 ​ — ​ 54,638 Prepaid expenses and other current assets ​ 1,427 ​ — ​ 1,427 Total current assets ​ 61,547 ​ — ​ 61,547 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, equipment, and software, net ​ 625 ​ — ​ 625 Goodwill ​ 6,520 ​ — ​ 6,520 Intangible assets, net ​ 12,172 ​ — ​ 12,172 Deferred tax asset, net ​ 5,082 ​ — ​ 5,082 Operating lease right-of-use assets ​ 675 ​ — ​ 675 Other long-term assets ​ 127 ​ — ​ 127 Total assets ​ $ 86,748 ​ $ — ​ $ 86,748 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ CURRENT LIABILITIES ​ ​ ​ Accounts payable ​ $ 45,021 ​ $ — ​ $ 45,021 Accrued liabilities ​ 4,071 ​ ( 1,000 ) ​ 3,071 Liability related to tax receivable agreement, current portion ​ 41 ​ — ​ 41 Current maturities of long-term debt ​ 1,146 ​ — ​ 1,146 Deferred revenues ​ 1,044 ​ — ​ 1,044 Operating lease liabilities, current portion ​ 50 ​ — ​ 50 Income taxes payable ​ 113 ​ — ​ 113 Warrant liability ​ — ​ 3,540 ​ 3,540 Related party payables ​ 1,428 ​ — ​ 1,428 Total current liabilities ​ 52,914 ​ 2,540 ​ 55,454 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt, net of current portion and deferred financing cost ​ 22,324 ​ — ​ 22,324 Economic Injury Disaster Loan ​ 150 ​ — ​ 150 Liability related to tax receivable agreement, net of current portion ​ 4,245 ​ — ​ 4,245 Operating lease liabilities, net of current portion ​ 718 ​ — ​ 718 Total liabilities ​ 80,351 ​ 2,540 ​ 82,891 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS’ EQUITY ​ ​ ​ Class A Common Stock, $ 0.001 par value per share, 160,000,000 shares authorized, 2,991,792 shares issued and outstanding as of September 30, 2023 ​ 3 ​ — ​ 3 Class B Common Stock, $ 0.001 par value per share, 20,000,000 shares authorized, 11,278,000 shares issued and outstanding as of September 30, 2023 ​ 11 ​ — ​ 11 Additional paid-in capital ​ 8,782 ​ ( 9,153 ) ​ ( 371 ) Retained earnings ​ ( 2,399 ) ​ 2,604 ​ 205 Noncontrolling interest ​ — ​ 4,009 ​ 4,009 Total stockholders’ equity ​ 6,397 ​ ( 2,540 ) ​ 3,857 Total liabilities and stockholders’ equity ​ $ 86,748 ​ $ — ​ $ 86,748 ​ 103 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ March 31, ​ ​ As Previously Restatement ​ ​ (in thousands, except per share data) ​ Reported ​ Adjustments ​ As Restated Revenues ​ ​ ​ Buy-side advertising ​ $ 7,440 ​ $ — $ 7,440 Sell-side advertising ​ 13,783 ​ ​ — 13,783 Total revenues ​ 21,223 ​ — ​ 21,223 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ Buy-side advertising ​ 2,949 ​ — ​ 2,949 Sell-side advertising ​ 11,841 ​ — ​ 11,841 Total cost of revenues ​ 14,790 ​ — ​ 14,790 Gross profit ​ 6,433 ​ — ​ 6,433 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ Compensation, taxes and benefits ​ 3,634 ​ — 3,634 General and administrative ​ 2,940 ​ — 2,940 Total operating expenses ​ 6,574 ​ — ​ 6,574 Loss from operations ​ ( 141 ) ​ — ​ ( 141 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ Other income ​ 50 ​ — ​ 50 Loss on redemption of non-participating preferred units ​ — ​ — ​ — Loss on early termination of line of credit ​ ( 300 ) ​ — ​ ( 300 ) Interest expense ​ ( 1,017 ) ​ — ​ ( 1,017 ) Total other expense, net ​ ( 1,267 ) ​ — ​ ( 1,267 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss before taxes ​ ( 1,408 ) ​ — ​ ( 1,408 ) Income tax (benefit) ​ ( 74 ) ​ — ​ ( 74 ) Net loss ​ ( 1,334 ) ​ — ​ ( 1,334 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss attributable to noncontrolling interest ​ — ​ ( 1,120 ) ​ ( 1,120 ) Net loss attributable to Direct Digital Holdings, Inc. ​ $ ( 1,334 ) ​ $ 1,120 ​ $ ( 214 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per common share: ​ ​ ​ Basic ​ $ ( 0.09 ) ​ $ 0.02 ​ $ ( 0.07 ) Diluted ​ $ ( 0.09 ) ​ $ 0.02 ​ $ ( 0.07 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ Basic ​ 14,576 ​ ( 11,675 ) ​ 2,901 Diluted ​ 14,576 ​ ( 11,675 ) ​ 2,901 ​ 104 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ June 30, ​ ​ As Previously Restatement ​ ​ (in thousands, except per share data) ​ Reported ​ Adjustments ​ As Restated Revenues ​ ​ ​ Buy-side advertising ​ $ 11,803 ​ $ — ​ $ 11,803 Sell-side advertising ​ 23,601 ​ — ​ 23,601 Total revenues ​ 35,404 ​ — ​ 35,404 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ Buy-side advertising ​ 4,588 ​ — ​ 4,588 Sell-side advertising ​ 20,743 ​ — ​ 20,743 Total cost of revenues ​ 25,331 ​ — ​ 25,331 Gross profit ​ 10,073 ​ — ​ 10,073 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ Compensation, taxes and benefits ​ 4,553 ​ — ​ 4,553 General and administrative ​ 3,265 ​ — ​ 3,265 Total operating expenses ​ 7,818 ​ — ​ 7,818 Income from operations ​ 2,255 ​ — ​ 2,255 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ Other income ​ 42 ​ — ​ 42 Loss on redemption of non-participating preferred units ​ — ​ — ​ — Loss on early termination of line of credit ​ — ​ — ​ — Interest expense ​ ( 1,028 ) ​ — ​ ( 1,028 ) Total other expense, net ​ ( 986 ) ​ — ​ ( 986 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before taxes ​ 1,269 ​ — ​ 1,269 Income tax expense ​ 74 ​ — ​ 74 Net income ​ 1,195 ​ — ​ 1,195 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income attributable to noncontrolling interest ​ — ​ 1,003 ​ 1,003 Net income attributable to Direct Digital Holdings, Inc. ​ $ 1,195 ​ $ ( 1,003 ) ​ $ 192 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per common share: ​ ​ ​ Basic ​ $ 0.08 ​ $ ( 0.05 ) ​ $ 0.03 Diluted ​ $ 0.08 ​ $ ( 0.05 ) ​ $ 0.03 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ Basic ​ 14,773 ​ ( 11,851 ) ​ 2,922 Diluted ​ 14,834 ​ ( 11,721 ) ​ 3,113 ​ 105 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ September 30, ​ ​ As Previously ​ Restatement ​ ​ ​ (in thousands, except per share data) ​ Reported Adjustments As Restated Revenues ​ ​ ​ Buy-side advertising ​ $ 7,850 ​ $ — ​ $ 7,850 Sell-side advertising ​ 51,622 ​ — ​ 51,622 Total revenues ​ 59,472 ​ — ​ 59,472 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ Buy-side advertising ​ 3,113 ​ — ​ 3,113 Sell-side advertising ​ 44,606 ​ — ​ 44,606 Total cost of revenues ​ 47,719 ​ — ​ 47,719 Gross profit ​ 11,753 ​ — ​ 11,753 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ Compensation, taxes and benefits ​ 4,747 ​ — ​ 4,747 General and administrative ​ 2,512 ​ — ​ 2,512 Total operating expenses ​ 7,259 ​ — ​ 7,259 Income from operations ​ 4,494 ​ — ​ 4,494 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ Other income ​ 83 ​ — ​ 83 Loss on redemption of non-participating preferred units ​ — ​ — ​ — Loss on early termination of line of credit ​ — ​ — ​ — Interest expense ​ ( 1,060 ) ​ — ​ ( 1,060 ) Total other expense, net ​ ( 977 ) ​ — ​ ( 977 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 3,517 ​ — ​ 3,517 Income tax expense ​ 166 ​ — ​ 166 Net income ​ 3,351 ​ — ​ 3,351 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income attributable to noncontrolling interest ​ — ​ 2,780 ​ 2,780 Net income attributable to Direct Digital Holdings, Inc. ​ $ 3,351 ​ $ ( 2,780 ) ​ $ 571 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per share: ​ ​ ​ Basic ​ $ 0.23 ​ $ ( 0.14 ) ​ $ 0.09 Diluted ​ $ 0.23 ​ $ ( 0.14 ) ​ $ 0.09 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ Basic ​ 14,268 ​ ( 11,278 ) ​ 2,990 Diluted ​ 14,827 ​ ( 11,783 ) ​ 3,044 ​ 106 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended ​ ​ June 30, ​ ​ As Previously ​ Restatement ​ ​ ​ (in thousands, except per share data) Reported Adjustments As Restated Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ Buy-side advertising ​ $ 19,243 ​ $ — ​ $ 19,243 Sell-side advertising ​ 37,384 ​ — ​ ​ 37,384 Total revenues ​ 56,627 ​ — ​ 56,627 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ Buy-side advertising ​ 7,537 ​ — ​ ​ 7,537 Sell-side advertising ​ 32,584 ​ — ​ ​ 32,584 Total cost of revenues ​ 40,121 ​ — ​ 40,121 Gross profit ​ 16,506 ​ — ​ 16,506 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation, taxes and benefits ​ 8,187 ​ — ​ ​ 8,187 General and administrative ​ 6,205 ​ — ​ ​ 6,205 Total operating expenses ​ 14,392 ​ — ​ 14,392 Income from operations ​ 2,114 ​ — ​ 2,114 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income ​ 92 ​ — ​ ​ 92 Loss on redemption of non-participating preferred units ​ — ​ — ​ ​ — Loss on early termination of line of credit ​ ( 300 ) ​ — ​ ​ ( 300 ) Interest expense ​ ( 2,045 ) ​ — ​ ​ ( 2,045 ) Total other expense, net ​ ( 2,253 ) ​ — ​ ( 2,253 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss before taxes ​ ( 139 ) ​ — ​ ​ ( 139 ) Income tax expense ​ — ​ — ​ ​ — Net loss ​ ( 139 ) ​ — ​ ( 139 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss attributable to noncontrolling interest ​ — ​ ( 117 ) ​ ( 117 ) Net loss attributable to Direct Digital Holdings, Inc. ​ $ ( 139 ) ​ $ 117 ​ $ ( 22 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.01 ) ​ $ 0.00 ​ $ ( 0.01 ) Diluted ​ $ ( 0.01 ) ​ $ 0.00 ​ $ ( 0.01 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 14,676 ​ ( 11,764 ) ​ 2,912 Diluted ​ 14,676 ​ ( 11,764 ) ​ 2,912 ​ 107 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Nine Months Ended ​ ​ September 30, ​ ​ As Previously ​ Restatement ​ ​ ​ (in thousands, except per share data) ​ Reported Adjustments As Restated Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ Buy-side advertising ​ $ 27,093 ​ $ — ​ $ 27,093 Sell-side advertising ​ 89,006 ​ — ​ 89,006 Total revenues ​ 116,099 ​ — ​ 116,099 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ Buy-side advertising ​ 10,650 ​ — ​ 10,650 Sell-side advertising ​ 77,190 ​ — ​ 77,190 Total cost of revenues ​ 87,840 ​ — ​ 87,840 Gross profit ​ 28,259 ​ — ​ 28,259 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ Compensation, taxes and benefits ​ 12,934 ​ — ​ 12,934 General and administrative ​ 8,718 ​ — ​ 8,718 Total operating expenses ​ 21,652 ​ — ​ 21,652 Income from operations ​ 6,607 ​ — ​ 6,607 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income ​ 175 ​ — ​ 175 Loss on early termination of line of credit ​ ( 300 ) ​ — ​ ( 300 ) Loss on redemption of non-participating preferred units ​ — ​ — ​ — Interest expense ​ ( 3,104 ) ​ — ​ ( 3,104 ) Total other expense, net ​ ( 3,229 ) ​ — ​ ( 3,229 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 3,378 ​ — ​ 3,378 Income tax expense ​ 166 ​ — ​ 166 Net income ​ 3,212 ​ — ​ 3,212 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income attributable to noncontrolling interest ​ — ​ 2,663 ​ 2,663 Net income attributable to Direct Digital Holdings, Inc. ​ $ 3,212 ​ $ ( 2,663 ) ​ $ 549 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.23 ​ $ ( 0.14 ) ​ $ 0.09 Diluted ​ $ 0.22 ​ $ ( 0.13 ) ​ $ 0.09 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average number of shares of common stock outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 14,216 ​ ( 11,278 ) ​ 2,938 Diluted ​ 14,818 ​ ( 11,738 ) ​ 3,080 ​ 108 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except per share data) Common Stock ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders’ As Previously Reported Units Amount Units Amount APIC ​ Deficit ​ Interest ​ Equity Balance, December 31, 2022 3,252,764 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,224 ​ $ ( 3,643 ) ​ $ — ​ $ 4,595 Stock-based compensation — ​ — — ​ — ​ 94 ​ — ​ — ​ 94 Issuance of restricted stock 236,754 ​ — — ​ — ​ — ​ — ​ — ​ — Restricted stock forfeitures ( 400 ) ​ — — ​ — ​ — ​ — ​ — ​ — Warrants exercised 2,200 ​ — — ​ — ​ 12 ​ — ​ — ​ 12 Net loss — ​ — — ​ — ​ — ​ ( 1,334 ) ​ — ​ ( 1,334 ) Balance, March 31, 2023 3,491,318 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,330 ​ $ ( 4,977 ) ​ $ — ​ $ 3,367 Adjustments ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 ( 352,764 ) ​ $ — — ​ $ — ​ $ ( 5,613 ) ​ $ 3,299 ​ $ 3,314 ​ $ 1,000 Issuance of restricted stock ( 236,754 ) ​ — — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock forfeitures 400 ​ — — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — Net loss — ​ — — ​ — ​ — ​ ​ 1,120 ​ ​ ( 1,120 ) ​ ​ — Total Adjustments ( 589,118 ) ​ $ — — ​ $ — ​ $ ( 5,613 ) ​ $ 4,419 ​ $ 2,194 ​ $ 1,000 As Restated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 2,900,000 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,611 ​ $ ( 344 ) ​ $ 3,314 ​ $ 5,595 Stock-based compensation — ​ — — ​ — ​ 94 ​ ​ — ​ ​ — ​ ​ 94 Warrants exercised 2,200 ​ — — ​ — ​ 12 ​ ​ — ​ ​ — ​ ​ 12 Net loss — ​ — — ​ — ​ — ​ ​ ( 214 ) ​ ​ ( 1,120 ) ​ ​ ( 1,334 ) Balance, March 31, 2023 - As Restated 2,902,200 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,717 ​ $ ( 558 ) ​ $ 2,194 ​ $ 4,367 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except per share data) Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders’ As Previously Reported Units Amount Units Amount APIC Deficit Interest Equity Balance, March 31, 2023 3,491,318 ​ $ 3 ​ 11,278,000 ​ $ 11 ​ $ 8,330 ​ $ ( 4,977 ) ​ $ — ​ $ 3,367 Stock-based compensation — ​ ​ — ​ — ​ ​ — ​ ​ 210 ​ ​ — ​ ​ — ​ ​ 210 Issuance of restricted stock net of shares withheld for vested awards 54,277 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock forfeitures ( 25,815 ) ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Distributions to members — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 752 ) ​ ​ — ​ ​ ( 752 ) Net income — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 1,195 ​ ​ — ​ ​ 1,195 Balance, June 30, 2023 3,519,780 ​ $ 3 ​ 11,278,000 ​ $ 11 ​ $ 8,540 ​ $ ( 4,534 ) ​ $ — ​ $ 4,020 Adjustments ​ ​ ​ ​ ​ ​ Balance, March 31, 2023 ( 589,118 ) ​ — — ​ — ​ ( 5,613 ) ​ ​ 4,419 ​ ​ 2,194 ​ ​ 1,000 Issuance of restricted stock net of shares withheld for vested awards ( 54,277 ) ​ — — ​ — ​ — ​ — ​ — ​ — Restricted stock forfeitures 25,815 ​ — — ​ — ​ — ​ — ​ — ​ — Issuance related to vesting of restricted stock units, net of tax withholdings 86,716 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to members — ​ — — ​ — ​ — ​ 752 ​ ( 752 ) ​ — Net income — ​ — — ​ — ​ — ​ ( 1,003 ) ​ 1,003 ​ — Total Adjustments ( 530,864 ) ​ $ — — ​ $ — ​ $ ( 5,613 ) ​ $ 4,168 ​ $ 2,445 ​ $ 1,000 As Restated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, March 31, 2023 2,902,200 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,717 ​ $ ( 558 ) ​ $ 2,194 ​ $ 4,367 Stock-based compensation — ​ — — ​ — ​ 210 ​ — ​ — ​ 210 Issuance related to vesting of restricted stock units, net of tax withholdings 86,716 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to holders of LLC Units — ​ — — ​ — ​ — ​ — ​ ( 752 ) ​ ( 752 ) Net income — ​ — — ​ — ​ — ​ 192 ​ 1,003 ​ 1,195 Balance, June 30, 2023 - As Restated 2,988,916 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,927 ​ $ ( 366 ) ​ $ 2,445 ​ $ 5,020 ​ 109 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except per share data) Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders’ As Previously Reported Units Amount Units Amount ​ APIC Deficit Interest Equity Balance, June 30, 2023 2,988,916 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,540 ​ $ ( 4,534 ) ​ $ — ​ $ 4,020 Stock-based compensation — ​ — — ​ — ​ 242 ​ — ​ — ​ 242 Issuance related to vesting of restricted stock units, net of tax withholdings 2,743 ​ — — ​ — ​ — ​ — ​ — ​ — Stock options exercised 133 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to members — ​ — — ​ — ​ — ​ ( 1,216 ) ​ — ​ ( 1,216 ) Net income — ​ — — ​ — ​ — ​ 3,351 ​ — ​ 3,351 Balance, September 30, 2023 2,991,792 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,782 ​ $ ( 2,399 ) ​ $ — ​ $ 6,397 Adjustments ​ ​ ​ ​ ​ ​ Balance, June 30, 2023 — ​ — — ​ — ​ ( 5,613 ) ​ 4,168 ​ 2,445 ​ 1,000 Acquisition and redemption of warrants including expenses — ​ — — ​ — ​ ( 3,540 ) ​ — ​ — ​ ( 3,540 ) Distributions to members — ​ — — ​ — ​ — ​ 1,216 ​ ( 1,216 ) ​ — Net income — ​ — — ​ — ​ — ​ ( 2,780 ) ​ 2,780 ​ — Total Adjustments — ​ $ — — ​ $ — ​ $ ( 9,153 ) ​ $ 2,604 ​ $ 4,009 ​ $ ( 2,540 ) As Restated ​ ​ ​ ​ ​ ​ Balance, June 30, 2023 2,988,916 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,927 ​ $ ( 366 ) ​ $ 2,445 ​ $ 5,020 Stock-based compensation — ​ — — ​ — ​ 242 ​ — ​ — ​ 242 Issuance related to vesting of restricted stock units, net of tax withholdings 2,743 ​ — — ​ — ​ — ​ — ​ — ​ — Acquisition and redemption of warrants including expenses — ​ — — ​ — ​ ( 3,540 ) ​ — ​ — ​ ( 3,540 ) Stock options exercised 133 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to holders of LLC Units — ​ — — ​ — ​ — ​ — ​ ( 1,216 ) ​ ( 1,216 ) Net income — ​ — — ​ — ​ — ​ 571 ​ 2,780 ​ 3,351 Balance, September 30, 2023 - As Restated 2,991,792 ​ $ 3 11,278,000 ​ $ 11 ​ $ ( 371 ) ​ $ 205 ​ $ 4,009 ​ $ 3,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except per share data) Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders’ As Previously Reported ​ Units Amount Units Amount APIC Deficit Interest Equity Balance, December 31, 2022 3,252,764 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,224 ​ $ ( 3,643 ) ​ $ — ​ $ 4,595 Stock-based compensation — ​ — — ​ — ​ 304 ​ — ​ — ​ 304 Issuance of restricted stock net of shares withheld for vested awards 291,031 ​ — — ​ — ​ — ​ — ​ — ​ — Restricted stock forfeitures ( 26,215 ) ​ — — ​ — ​ — ​ — ​ — ​ — Warrants exercised 2,200 ​ — — ​ — ​ 12 ​ — ​ — ​ 12 Distributions to members — ​ — — ​ — ​ — ​ ( 752 ) ​ — ​ ( 752 ) Net loss — ​ — — ​ — ​ — ​ ( 139 ) ​ — ​ ( 139 ) Balance, June 30, 2023 3,519,780 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,540 ​ $ ( 4,534 ) ​ $ — ​ $ 4,020 Adjustments ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 ( 352,764 ) ​ — — ​ — ​ ( 5,613 ) ​ ​ 3,299 ​ ​ 3,314 ​ ​ 1,000 Issuance of restricted stock net of shares withheld for vested awards ( 291,031 ) ​ — — ​ — ​ — ​ — ​ — ​ — Restricted stock forfeitures 26,215 ​ — — ​ — ​ — ​ — ​ — ​ — Issuance related to vesting of restricted stock units, net of tax withholdings 86,716 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to members — ​ — — ​ — ​ — ​ 752 ​ ( 753 ) ​ — Net loss — ​ — — ​ — ​ — ​ 117 ​ ( 117 ) ​ — Total Adjustments ( 530,864 ) ​ $ — — ​ $ — ​ $ ( 5,613 ) ​ $ 4,168 ​ $ 2,445 ​ $ 1,000 As Restated ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 2,900,000 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,611 ​ $ ( 344 ) ​ $ 3,314 ​ $ 5,595 Stock-based compensation — ​ — — ​ — ​ 304 ​ — ​ — ​ 304 Warrants exercised 2,200 ​ — — ​ — ​ 12 ​ — ​ — ​ 12 Issuance related to vesting of restricted stock units, net of tax withholdings 86,716 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to holders of LLC Units — ​ — — ​ — ​ — ​ — ​ ( 752 ) ​ ( 752 ) Net loss — ​ — — ​ — ​ — ​ ( 22 ) ​ ( 117 ) ​ ( 139 ) Balance, June 30, 2023 - As Restated 2,988,916 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,927 ​ $ ( 366 ) ​ $ 2,445 ​ $ 5,020 ​ 110 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except per share data) Common Stock ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ Accumulated ​ Noncontrolling ​ Stockholders’ As Previously Reported Units Amount Units Amount APIC Deficit Interest Equity Balance, December 31, 2022 2,900,000 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,224 ​ $ ( 3,643 ) ​ $ — ​ $ 4,595 Stock-based compensation — ​ — — ​ — ​ 546 ​ — ​ — ​ 546 Issuance related to vesting of restricted stock units, net of tax withholdings 89,459 ​ — — ​ — ​ — ​ — ​ — ​ — Warrants exercised 2,200 ​ — — ​ — ​ 12 ​ — ​ — ​ 12 Stock options exercised 133 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to members — ​ — — ​ — ​ — ​ ( 1,968 ) ​ — ​ ( 1,968 ) Net income — ​ — — ​ — ​ — ​ 3,212 ​ — ​ 3,212 Balance, September 30, 2023 2,991,792 ​ $ 3 11,278,000 ​ $ 11 ​ $ 8,782 ​ $ ( 2,399 ) ​ $ — ​ $ 6,397 Adjustments ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 — ​ — — ​ — ​ ( 5,613 ) ​ ​ 3,299 ​ ​ 3,314 ​ ​ 1,000 Acquisition and redemption of warrants including expenses — ​ — — ​ — ​ ( 3,540 ) ​ — ​ — ​ ( 3,540 ) Distributions to members — ​ — — ​ — ​ — ​ 1,968 ​ ( 1,968 ) ​ — Net income — ​ — — ​ — ​ — ​ ( 2,663 ) ​ 2,663 ​ — Total Adjustments — ​ $ — — ​ $ — ​ $ ( 9,153 ) ​ $ 2,604 ​ $ 4,009 ​ $ ( 2,540 ) As Restated ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 2,900,000 ​ $ 3 11,278,000 ​ $ 11 ​ $ 2,611 ​ $ ( 344 ) ​ $ 3,314 ​ $ 5,595 Stock-based compensation — ​ — — ​ — ​ 546 ​ — ​ — ​ 546 Issuance related to vesting of restricted stock units, net of tax withholdings 89,459 ​ — — ​ — ​ — ​ — ​ — ​ — Acquisition and redemption of warrants including expenses 2,200 ​ — — ​ — ​ 12 ​ — ​ — ​ 12 Warrant redemption — ​ — — ​ — ​ ( 3,540 ) ​ — ​ — ​ ( 3,540 ) Stock options exercised 133 ​ — — ​ — ​ — ​ — ​ — ​ — Distributions to holders of LLC Units — ​ — — ​ — ​ — ​ — ​ ( 1,968 ) ​ ( 1,968 ) Net income — ​ — — ​ — ​ — ​ 549 ​ 2,663 ​ 3,212 Balance, September 30, 2023 As Restated 2,991,792 ​ $ 3 11,278,000 ​ $ 11 ​ $ ( 371 ) ​ $ 205 ​ $ 4,009 ​ $ 3,857 ​ 111 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ For the Three Months Ended March 31, 2023 ​ ​ As Previously ​ Immaterial ​ ​ ​ ​ ​ Reported ​ Revisions ​ As Revised Cash Flows Provided By Operating Activities: ​ ​ ​ Net loss ​ $ ( 1,334 ) ​ $ — ​ $ ( 1,334 ) Adjustments to reconcile net loss to net cash provided by operating activities: ​ ​ ​ Amortization of deferred financing costs ​ 136 ​ — ​ 136 Amortization of intangible assets ​ 489 ​ — ​ 489 Reduction in carrying amount of right-of-use assets ​ 42 ​ — ​ 42 Depreciation and amortization of property, equipment and software ​ 57 ​ — ​ 57 Stock-based compensation ​ 94 ​ — ​ 94 Deferred income taxes ​ ( 74 ) ​ — ​ ( 74 ) Payment on tax receivable agreement ​ ( 46 ) ​ 46 ​ — Loss on early termination of line of credit ​ 300 ​ — ​ 300 Changes in operating assets and liabilities: ​ ​ ​ ​ Accounts receivable ​ 7,304 ​ — ​ 7,304 Prepaid expenses and other assets ​ ( 242 ) ​ — ​ ( 242 ) Accounts payable ​ ( 3,909 ) ​ — ​ ( 3,909 ) Accrued liabilities and TRA payable ​ ( 40 ) ​ ( 110 ) ​ ( 150 ) Income taxes payable ​ 8 ​ — ​ 8 Deferred revenues ​ 403 ​ — ​ 403 Operating lease liability ​ ( 24 ) ​ — ​ ( 24 ) Net cash provided by operating activities ​ 3,164 ​ ( 64 ) ​ 3,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Investing Activities: ​ ​ ​ Cash paid for capitalized software and property and equipment ​ ( 48 ) ​ — ​ ( 48 ) Net cash used in investing activities ​ ( 48 ) ​ — ​ ( 48 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Financing Activities: ​ ​ ​ Payments on term loan ​ ( 164 ) ​ — ​ ( 164 ) Payments of litigation settlement ​ ( 64 ) ​ 64 ​ — Payment of deferred financing costs ​ ( 228 ) ​ — ​ ( 228 ) Proceeds from warrants exercised ​ 12 ​ — ​ 12 Net cash used in financing activities ​ ( 444 ) ​ 64 ​ ( 380 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase in cash and cash equivalents ​ 2,672 ​ — ​ 2,672 Cash and cash equivalents, beginning of the period ​ 4,047 ​ — ​ 4,047 Cash and cash equivalents, end of the period ​ $ 6,719 ​ $ — ​ $ 6,719 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental Disclosure of Cash Flow Information: ​ ​ ​ Cash paid for interest ​ $ 879 ​ $ — ​ $ 879 ​ 112 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ For the Six Months Ended June 30, 2023 ​ ​ As Previously ​ Immaterial ​ ​ ​ ​ ​ Reported ​ Revisions ​ As Revised Cash Flows Provided By Operating Activities: ​ ​ ​ Net loss ​ $ ( 139 ) ​ $ — ​ $ ( 139 ) Adjustments to reconcile net loss to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of deferred financing costs ​ 272 ​ — ​ 272 Amortization of intangible assets ​ 977 ​ — ​ 977 Reduction in carrying amount of right-of-use assets ​ 85 ​ — ​ 85 Depreciation and amortization of property, equipment and software ​ 121 ​ — ​ 121 Stock-based compensation ​ 304 ​ — ​ 304 Deferred income taxes ​ ( 6 ) ​ — ​ ( 6 ) Payment on tax receivable agreement ​ ( 46 ) ​ 46 ​ — Loss on early termination of line of credit ​ 300 ​ — ​ 300 Bad debt expense ​ 52 ​ — ​ 52 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 3,326 ) ​ — ​ ( 3,326 ) Prepaid expenses and other assets ​ ( 257 ) ​ — ​ ( 257 ) Accounts payable ​ 5,662 ​ — ​ 5,662 Accrued liabilities and TRA payable ​ ( 769 ) ​ ( 175 ) ​ ( 944 ) Income taxes payable ​ ( 152 ) ​ — ​ ( 152 ) Deferred revenues ​ 404 ​ — ​ 404 Operating lease liability ​ ( 48 ) ​ — ​ ( 48 ) Related party payable ​ ( 251 ) ​ — ​ ( 251 ) Net cash provided by operating activities ​ 3,183 ​ ( 129 ) ​ 3,054 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Investing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for capitalized software and property and equipment ​ ( 137 ) ​ — ​ ( 137 ) Net cash used in investing activities ​ ( 137 ) ​ — ​ ( 137 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Financing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments on term loan ​ ( 328 ) ​ — ​ ( 328 ) Payments of litigation settlement ​ ( 129 ) ​ 129 ​ — Payment of deferred financing costs ​ ( 228 ) ​ — ​ ( 228 ) Proceeds from warrants exercised ​ 12 ​ — ​ 12 Distributions to holders of LLC Units ​ ( 752 ) ​ — ​ ( 752 ) Net cash used in financing activities ​ ( 1,425 ) ​ 129 ​ ( 1,296 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase in cash and cash equivalents ​ 1,621 ​ — ​ 1,621 Cash and cash equivalents, beginning of the period ​ 4,047 ​ — ​ 4,047 Cash and cash equivalents, end of the period ​ $ 5,668 ​ $ — ​ $ 5,668 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental Disclosure of Cash Flow Information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for taxes ​ $ 349 ​ $ — ​ $ 349 Cash paid for interest ​ $ 1,769 ​ $ — ​ $ 1,769 ​ 113 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ For the Nine Months Ended September 30, 2023 ​ ​ As Previously ​ Restatement ​ ​ ​ ​ Immaterial ​ ​ ​ ​ ​ Reported ​ Adjustments ​ As Restated ​ Revisions ​ As Revised Cash Flows Provided By Operating Activities: ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 3,212 ​ $ — ​ $ 3,212 ​ $ — ​ $ 3,212 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of deferred financing costs ​ 435 ​ — ​ 435 ​ — ​ 435 Amortization of intangible assets ​ 1,465 ​ — ​ 1,465 ​ — ​ 1,465 Reduction in carrying amount of right-of-use assets ​ 124 ​ — ​ 124 ​ — ​ 124 Depreciation and amortization of property, equipment and software ​ 185 ​ — ​ 185 ​ — ​ 185 Stock-based compensation ​ 546 ​ — ​ 546 ​ — ​ 546 Deferred income taxes ​ 82 ​ — ​ 82 ​ — ​ 82 Payment on tax receivable agreement ​ ( 46 ) ​ — ​ ( 46 ) ​ 46 ​ — Loss on early termination of line of credit ​ 300 ​ — ​ 300 ​ — ​ 300 Bad debt expense ​ 98 ​ — ​ 98 ​ — ​ 98 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 28,381 ) ​ — ​ ( 28,381 ) ​ — ​ ( 28,381 ) Prepaid expenses and other assets ​ ( 524 ) ​ — ​ ( 524 ) ​ — ​ ( 524 ) Accounts payable ​ 27,326 ​ — ​ 27,326 ​ — ​ 27,326 Accrued liabilities and TRA payable ​ ( 513 ) ​ — ​ ( 513 ) ​ ( 240 ) ​ ( 753 ) Income taxes payable ​ ( 61 ) ​ — ​ ( 61 ) ​ — ​ ( 61 ) Deferred revenues ​ 497 ​ — ​ 497 ​ — ​ 497 Operating lease liability ​ ( 70 ) ​ — ​ ( 70 ) ​ — ​ ( 70 ) Net cash provided by operating activities ​ 4,675 ​ — ​ 4,675 ​ ( 194 ) ​ 4,481 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Investing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for capitalized software and property and equipment ​ ( 137 ) ​ — ​ ( 137 ) ​ — ​ ( 137 ) Net cash used in investing activities ​ ( 137 ) ​ — ​ ( 137 ) ​ — ​ ( 137 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows Used In Financing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments on term loan ​ ( 491 ) ​ — ​ ( 491 ) ​ — ​ ( 491 ) Payments of litigation settlement ​ ( 194 ) ​ — ​ ( 194 ) ​ 194 ​ — Payment of deferred financing costs ​ ( 442 ) ​ — ​ ( 442 ) ​ — ​ ( 442 ) Proceeds from warrants exercised ​ 12 ​ — ​ 12 ​ — ​ 12 Distributions to members ​ ( 1,988 ) ​ — ​ ( 1,988 ) ​ — ​ ( 1,988 ) Net cash used in financing activities ​ ( 3,103 ) ​ — ​ ( 3,103 ) ​ 194 ​ ( 2,909 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase in cash and cash equivalents ​ 1,435 ​ — ​ 1,435 ​ — ​ 1,435 Cash and cash equivalents, beginning of the period ​ 4,047 ​ — ​ 4,047 ​ — ​ 4,047 Cash and cash equivalents, end of the period ​ $ 5,482 ​ $ — ​ $ 5,482 ​ $ — ​ $ 5,482 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental Disclosure of Cash Flow Information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for taxes ​ $ 349 ​ $ — ​ $ 349 ​ $ — ​ $ 349 Cash paid for interest ​ $ 2,667 ​ $ — ​ $ 2,667 ​ $ — ​ $ 2,667 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-cash Financing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrual of warrant redemption liability ​ $ — ​ $ 3,540 ​ $ 3,540 ​ $ — ​ $ 3,540 Issuance related to vesting of restricted stock units, net of tax withholdings ​ $ 90 ​ $ — ​ $ 90 ​ $ — ​ $ 90 ​ ​ ​ 114 Table of Contents ITEM 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure None.